Indian Contract Act, 1872 – Sections 1–9: Offer, Acceptance, Revocation and Case Laws

The Indian Contract Act, 1872 lays down the general principles relating to contracts. Its Preamble states that the Act was enacted to define and amend certain parts of the law relating to contracts.

SECTION 1 - SHORT TITLE, EXTENT, COMMENCEMENT AND SAVING

The Act is called the Indian Contract Act, 1872.

It is:

• Act No. 9 of 1872;
• enacted on 25 April 1872; and
• brought into force on 1 September 1872.

The Act now extends to the whole of India.

Saving Clause

Section 1 preserves:

• any Statute, Act or Regulation not expressly repealed by the Contract Act;
• any usage or custom of trade; and
• any incident of a contract,

so far as such usage, custom or incident is not inconsistent with the provisions of the Act.

Thus, a recognised trade custom may supplement a contract, but it cannot override a provision of the Contract Act.

SECTION 2 - INTERPRETATION CLAUSE

Section 2 contains the basic definitions used in the Act. These expressions are to be understood in the meanings given to them unless a contrary intention appears from the context.

SECTION 2(a) - PROPOSAL

A person makes a proposal when he signifies to another his willingness:

1. to do something or to abstain from doing something; and
2. does so with a view to obtaining the assent of that other person.

The Act uses the word “proposal”. The word “offer” is commonly used in the same sense.

For example, if A tells B, “I am willing to sell my car to you for ₹5 lakh,” intending to obtain B's assent, A has made a proposal.

A PROPOSAL MUST SHOW WILLINGNESS TO BE BOUND

Every statement made during negotiations is not an offer.

A communication becomes an offer only when it shows a clear willingness to enter into a binding agreement if the other person accepts it.

Therefore, a mere:

• statement of intention;
• supply of information;
• quotation of price; or
• preliminary negotiation

does not necessarily amount to an offer.

Harvey v. Facey (1893)

Harvey asked Facey whether he would sell certain property and also asked him to state his lowest cash price. Facey replied that the lowest price was £900.

Harvey then stated that he agreed to buy the property for £900.

The Privy Council held that Facey's reply was only a statement of the lowest price and not an offer to sell. Therefore, Harvey's reply could not amount to acceptance because there was no offer capable of being accepted.

A statement of price, by itself, does not necessarily amount to an offer.

Col. D.I. MacPherson v. M.N. Appanna (1951)

A communication stated that the owner “won't accept less than ₹10,000.”

The Supreme Court held that this was only a statement of the lowest price and not a definite offer to sell.

There must be a clear intention to enter into a binding agreement. Mere indication of the minimum price is not enough.

OFFER AND INVITATION TO OFFER

An offer is a definite expression of willingness to enter into a contract and can be accepted by the other party.

An invitation to offer is different. It merely invites other persons to make offers. The person making the invitation remains free to accept or reject the offer later made to him.

Common examples include:

• display of goods in a shop;
• catalogues;
• price lists;
• auction advertisements; and
• invitations for tenders.

Whether a communication is an offer or merely an invitation to offer ultimately depends upon its wording and circumstances.

Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd. (1953)

Goods were displayed on shelves in a self-service shop. Customers selected the goods and took them to the cashier.

The Court held that the display of goods was only an invitation to offer. The customer made the offer to buy when he presented the goods at the cashier's counter. The shopkeeper could then accept or reject the offer.

Fisher v. Bell (1961)

A flick knife was displayed in a shop window with a price tag.

The Court held that the display was an invitation to offer and not an offer for sale.

Thus, merely displaying an article with its price does not ordinarily amount to an offer.

Harris v. Nickerson (1873)

An auctioneer advertised that certain goods would be sold at an auction. The plaintiff travelled to attend the auction, but the goods were withdrawn.

It was held that the advertisement did not amount to an offer that the goods would definitely be put up for sale. It was merely an invitation to persons to attend the auction.

GENERAL OFFER

An offer may be made:

• to a particular person;
• to a class of persons; or
• to the public at large.

An offer made to the public generally is known as a general offer.

Any person who has knowledge of such an offer and performs its conditions may accept it.

Carlill v. Carbolic Smoke Ball Co. (1893)

The company advertised that it would pay £100 to any person who used its smoke ball according to the given directions and still contracted influenza.

The advertisement also stated that £1,000 had been deposited in a bank, showing that the company was serious about its promise.

Mrs Carlill used the smoke ball as directed but still contracted influenza.

The Court of Appeal held that the advertisement was a genuine general offer to the public. It could be accepted by any person who performed its conditions.

Mrs Carlill accepted the offer by using the smoke ball as required. A separate communication saying “I accept” was not necessary because the offer itself contemplated acceptance by performance.

Thus, although ordinary advertisements are generally invitations to offer, an advertisement containing a definite promise and showing an intention to be bound may itself amount to an offer.

KNOWLEDGE OF THE OFFER IS NECESSARY

A person cannot accept an offer unless he has knowledge of it.

If a person performs an act without knowing that a reward or offer exists, his conduct cannot ordinarily amount to acceptance of that offer.

Lalman Shukla v. Gauri Dutt (1913)

Gauri Dutt's nephew went missing, and his servant Lalman Shukla was sent to search for him.

After Lalman had already left, Gauri Dutt announced a reward for anyone who found the boy.

Lalman found and returned the boy, but at that time he had no knowledge of the reward.

The Court held that he could not claim the reward because he had acted without knowledge of the offer.

Thus, knowledge of the offer is necessary before conduct can amount to acceptance.

Williams v. Carwardine (1833)

A reward was announced for information leading to the discovery of a murderer.

The claimant knew about the reward when she gave the required information, though her main motive was to ease her conscience rather than to obtain the reward money.

She was allowed to claim the reward.

The case shows that while knowledge of the offer is necessary, the motive for accepting or performing the offer is generally immaterial.

SPECIFIC OFFER

Where an offer is made to a particular person, it can ordinarily be accepted only by that person or by someone legally authorised to act on his behalf.

Boulton v. Jones (1857)

Jones intended to purchase goods from Brocklehurst, with whom he had previously dealt.

Unknown to Jones, Brocklehurst had sold his business to Boulton. Boulton supplied the goods in response to Jones's order without informing him of the change.

It was held that Boulton could not enforce the contract against Jones because Jones had intended to contract with Brocklehurst.

Thus, where an offer is made to a specific person, another person cannot ordinarily substitute himself and accept that offer.

CROSS OFFERS

Cross offers arise when two persons make identical offers to each other without knowing about the other's offer.

Such offers do not create a contract because neither offer is an acceptance of the other.

Tinn v. Hoffman & Co. (1873)

The parties independently sent offers containing substantially identical terms, and the letters crossed in the post.

It was held that no contract arose merely because the offers were identical.

There must be an offer by one party and an acceptance of that offer by the other. Two identical offers do not by themselves amount to offer and acceptance.

STANDING OR CONTINUING OFFER

An offer which remains open for acceptance over a period is known as a standing or continuing offer.

A tender to supply goods as and when required during a specified period may amount to a standing offer.

The tender itself does not ordinarily create a contract for the entire quantity mentioned. Each separate order placed under the tender amounts to an acceptance of the standing offer for that quantity and creates a separate contract.

The standing offer may generally be revoked for future orders, but contracts already created by orders placed before revocation remain binding.

Great Northern Railway Co. v. Witham (1873)

A supplier agreed to supply specified goods to a railway company whenever required during a stated period.

The tender was treated as a standing offer. Every order placed by the railway company amounted to an acceptance in respect of the quantity ordered.

The offer could be revoked for future orders, but orders already placed remained binding.

INTENTION TO CREATE LEGAL RELATIONS

For an agreement to become a contract, the parties must intend that their arrangement should create legal obligations.

The expression “intention to create legal relations” is not expressly mentioned in Section 10, but it is a recognised principle of contract law.

Ordinary domestic, social or friendly arrangements may not be intended to create legal obligations. On the other hand, commercial arrangements are generally made with the intention of creating legal consequences.

The intention is determined from the nature of the agreement and the surrounding circumstances.

Balfour v. Balfour (1919)

A husband promised to pay his wife a monthly allowance while they were temporarily living apart but remained in an amicable marital relationship.

The Court held that the arrangement was an ordinary domestic arrangement and was not intended to create legal obligations.

The case shows that ordinary family arrangements may not amount to contracts if the parties did not intend them to be legally enforceable.

Merritt v. Merritt (1970)

A husband and wife who had separated entered into a written agreement concerning their matrimonial home.

The husband agreed that if the wife paid the outstanding mortgage, he would transfer the property to her.

The Court held that the agreement was legally enforceable. Since the parties were already separated and were dealing with each other formally, the circumstances showed an intention to create legal relations.

Thus, family members can also enter into binding contracts if the circumstances show an intention to create legal obligations.

Rose & Frank Co. v. J.R. Crompton & Bros. Ltd. (1925)

The parties entered into a commercial arrangement containing an “honourable pledge clause” stating that the arrangement was not to be legally enforceable and was binding only in honour.

The Court held that the clause clearly showed that the parties did not intend the arrangement itself to create legal obligations.

The case shows that even in a commercial arrangement, the parties may expressly exclude an intention to create legal relations.

SECTION 2(b) - ACCEPTANCE AND PROMISE

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

Once a proposal is accepted, it becomes a promise.

Thus, a proposal by itself is only an offer to enter into an agreement. It becomes a promise only when the person to whom it is made gives his assent.

Acceptance Must Be Expressed in Some Manner

Acceptance requires some outward expression of assent. A person cannot ordinarily create a contract merely by deciding in his own mind that he accepts the offer.

The intention to accept must normally be shown through:

• words, whether spoken or written; or
• conduct which clearly shows acceptance.

In appropriate cases, acceptance may also take place by performing the conditions of the offer, as in the case of a general offer.

Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. (1966)

The parties entered into negotiations over telephone regarding the sale of goods. The question before the Supreme Court involved the communication and completion of acceptance.

The Supreme Court observed that a mere mental decision to accept an offer is not enough. There must be an intention to accept together with some outward manifestation of that intention through words, writing or conduct, unless communication of acceptance is dispensed with by the nature of the offer or by law.

Thus, acceptance must ordinarily be communicated or otherwise clearly manifested before a proposal can become a promise.

SECTION 2(c) - PROMISOR AND PROMISEE

After a proposal has been accepted:

• the person making the proposal is called the promisor; and
• the person accepting the proposal is called the promisee.

These expressions therefore arise after the proposal has been accepted and has become a promise.

Before acceptance, the parties are commonly described as:

• proposer or offeror - the person making the proposal; and
• offeree - the person to whom the proposal is made.

SECTION 2(d) - CONSIDERATION

When, at the desire of the promisor:

• the promisee; or
• any other person

has done or abstained from doing something, or does or abstains from doing something, or promises to do or abstain from doing something, such act, abstinence or promise is called consideration for the promise.

In simple terms, consideration is something given, done, not done, or promised in return for a promise.

CONSIDERATION MUST BE AT THE DESIRE OF THE PROMISOR

For an act or abstinence to amount to consideration, it must have been done at the desire of the promisor.

If a person does something voluntarily, or at the request of a third person, it does not ordinarily become consideration merely because the promisor later receives some benefit from it.

Durga Prasad v. Baldeo (1880)

The plaintiff constructed certain shops in a market at the request of the Collector. The defendants, who later occupied those shops, promised to pay him commission on goods sold through them.

The Court held that the plaintiff's act of constructing the shops was not consideration for the defendants' promise, because the construction had been undertaken at the desire of the Collector and not at the desire of the defendants.

Thus, the act relied upon as consideration must have been done at the desire of the promisor.

CONSIDERATION MAY MOVE FROM THE PROMISEE OR ANY OTHER PERSON

Section 2(d) expressly uses the words “the promisee or any other person.”

Therefore, under Indian law, consideration need not necessarily move from the promisee himself. It may move from a third person.

Chinnaya v. Ramayya (1882)

An old lady transferred property to her daughter on the condition that the daughter would pay an annuity to the lady's brother.

The daughter later refused to make the payment, arguing that the brother had given no consideration to her.

The Court held that the promise was enforceable. The transfer of property by the old lady was sufficient consideration even though the consideration had moved from a person other than the promisee.

Thus, under Indian law, consideration may move from the promisee or from any other person.

This rule should not be confused with the separate rule of privity of contract, which deals with the question of who can sue upon a contract.

PAST, PRESENT AND FUTURE CONSIDERATION

The language of Section 2(d) recognises three forms of consideration.

Past Consideration

The words “has done or abstained from doing” refer to an act or abstinence which has already taken place.

Where an act has already been done at the desire of the promisor and a promise is subsequently made in return for it, the consideration is past consideration.

Present Consideration

The words “does or abstains from doing” refer to an act or abstinence taking place at the time of the promise.

This is commonly called present or executed consideration.

Future Consideration

The words “promises to do or to abstain from doing” refer to a promise to do or not to do something in the future.

This is known as future or executory consideration.

Thus, Indian law recognises past, present and future consideration, provided the other requirements of valid consideration are satisfied.

SECTION 2(e) - AGREEMENT

According to Section 2(e):

“Every promise and every set of promises, forming the consideration for each other, is an agreement.”

An agreement therefore arises when there are promises which form the consideration for each other.

The sequence may be understood as follows:

Proposal → Acceptance → Promise → Agreement → Contract, if enforceable by law

An agreement is wider than a contract. Every contract is an agreement, but every agreement does not become a contract because an agreement must also be enforceable by law before it can acquire the status of a contract.

SECTION 2(f) - RECIPROCAL PROMISES

Promises which form the consideration or part of the consideration for each other are called reciprocal promises.

In simple terms, where each party makes a promise in return for the promise of the other, the promises are reciprocal.

Example

A promises to deliver a car to B, and B promises to pay ₹5 lakh to A.

A's promise to deliver the car is the consideration for B's promise to pay the price, while B's promise to pay is the consideration for A's promise to deliver the car.

Both promises are therefore reciprocal promises.

The detailed rules relating to the performance of reciprocal promises are mainly contained in Sections 51-58.

SECTION 2(g) - VOID AGREEMENT

An agreement not enforceable by law is said to be void.

A void agreement does not create enforceable contractual obligations between the parties.

The Act later deals with several kinds of agreements which are void, such as:

• certain agreements without consideration;
• agreements in restraint of marriage;
• certain agreements in restraint of trade;
• agreements in restraint of legal proceedings;
• uncertain agreements; and
• wagering agreements.

The particular grounds on which an agreement becomes void are dealt with in the relevant provisions of the Act.

SECTION 2(h) - CONTRACT

An agreement enforceable by law is a contract.

Thus, every contract necessarily contains an agreement, but every agreement does not become a contract. The additional requirement is legal enforceability.

For example, an ordinary social promise may amount to an understanding between the parties, but unless it is legally enforceable, it does not become a contract.

The requirements which make an agreement enforceable as a contract are principally contained in Section 10.

SECTION 2(i) - VOIDABLE CONTRACT

An agreement which is enforceable by law:

• at the option of one or more of the parties; but
• not at the option of the other party or parties,

is called a voidable contract.

In such a contract, one party has the legal right to either:

• continue with the contract; or
• avoid or rescind it.

Example

If A obtains B's consent to a contract by coercion, the contract is voidable at the option of B.

B may choose to avoid the contract. He may also choose to affirm it and allow it to continue.

A voidable contract should therefore not be confused with a void agreement. A void agreement is not enforceable by law, whereas a voidable contract remains enforceable unless and until the party entitled to avoid it chooses to do so.

SECTION 2(j) - CONTRACT WHICH BECOMES VOID

A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

This provision deals with a contract which was valid and enforceable when it was made, but later becomes unenforceable because of a subsequent event.

Example

A and B enter into a valid contract for the performance of an act. Before performance becomes due, a subsequent change in law makes that act unlawful.

The contract, though valid when made, becomes void when its performance becomes unlawful.

A similar situation may arise where performance subsequently becomes impossible under Section 56.

SECTION 3 - COMMUNICATION OF PROPOSALS, ACCEPTANCES AND REVOCATIONS

Section 3 explains how communication of:

• a proposal;
• an acceptance;
• revocation of a proposal; and
• revocation of an acceptance

takes place.

Communication may be made by any act or omission of the person proposing, accepting or revoking:

• by which he intends to communicate it; or
• which has the effect of communicating it.

Therefore, contractual communication need not always be made through a formal written document. It may take place through:

• spoken words;
• written words;
• conduct; or
• in an appropriate case, an omission which has the effect of communication.

However, a mere mental decision to accept an offer is ordinarily not enough. There must be some outward expression of that intention.

SECTION 4 - WHEN COMMUNICATION IS COMPLETE

Section 4 lays down different rules for the completion of communication of:

• proposal;
• acceptance; and
• revocation.

These rules are important because the exact time when communication becomes complete may determine whether a contract has been formed or whether an offer or acceptance has been validly revoked.

COMMUNICATION OF PROPOSAL

The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

Example

A sends B a letter offering to sell his house.

The proposal is not complete merely when A posts the letter. It becomes complete only when the offer comes to B's knowledge.

This also explains the principle in Lalman Shukla v. Gauri Dutt (1913). A person who does not know about an offer cannot accept it merely by performing the act mentioned in the offer.

COMMUNICATION OF ACCEPTANCE

Section 4 fixes two different points of completion of an acceptance.

As Against the Proposer

Communication of acceptance is complete against the proposer when the acceptance is:

• put into a course of transmission to him; and
• is beyond the power of the acceptor.

Thus, where acceptance by post is a permitted mode, the proposer may become bound when the letter of acceptance is properly posted.

As Against the Acceptor

Communication of acceptance is complete against the acceptor when it comes to the knowledge of the proposer.

Example

A makes an offer to B by post. B accepts it by letter.

• As against A, the acceptance is complete when B posts the letter of acceptance.
• As against B, the acceptance is complete when the letter reaches A and comes to his knowledge.

This difference is particularly important in understanding the right to revoke an acceptance under Section 5.

ACCEPTANCE BY POST

Where post is a proper mode of communication, acceptance may become complete against the proposer when the letter of acceptance is properly posted, even though it reaches him later.

Adams v. Lindsell (1818)

The defendants offered by post to sell wool and asked for a reply by post. Because the offer letter was wrongly addressed, it reached the plaintiffs late. The plaintiffs posted their acceptance immediately after receiving it, but before the acceptance reached the defendants, the wool was sold to another person.

The Court held that the contract was complete when the acceptance was posted.

The case became the foundation of the rule that, where post is an authorised method of acceptance, acceptance may take effect upon dispatch.

Household Fire Insurance Co. v. Grant (1879)

Grant applied for shares in a company. The company's letter of allotment, which amounted to acceptance, was properly posted but never reached him.

The Court held that the acceptance was nevertheless effective.

The case shows that under the traditional postal rule, a properly posted acceptance may bind the proposer even if the letter is delayed or lost in transmission.

Under Section 4, however, the statutory wording should always be kept in mind: acceptance is complete against the proposer when it is put into transmission beyond the acceptor's power, and against the acceptor when it comes to the proposer's knowledge.

INSTANTANEOUS COMMUNICATION

The postal rule does not apply in the same manner to instantaneous communication such as telephone.

In such cases, acceptance ordinarily becomes effective when it is received or heard by the proposer.

Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. (1966)

The parties negotiated over a long-distance telephone call. An offer was made from Ahmedabad and was accepted by the other party speaking from Khamgaon.

The Supreme Court held that in a telephone conversation, the contract is complete at the place where the acceptance is received and heard by the proposer.

Since the acceptance was heard at Ahmedabad, the contract was treated as having been made there.

Telephone communication is therefore treated differently from communication by post because the parties are in direct and almost immediate communication with each other.

Entores Ltd. v. Miles Far East Corporation (1955)

Acceptance was sent by telex.

The Court held that in instantaneous forms of communication, acceptance becomes effective when it is received by the offeror, rather than merely when it is sent.

COMMUNICATION OF REVOCATION

Section 4 also fixes two different points for completion of a revocation.

As Against the Person Making the Revocation

Communication of revocation is complete when it is:

• put into a course of transmission to the other person; and
• is beyond the power of the person making the revocation.

As Against the Person Receiving the Revocation

Communication of revocation is complete when it comes to his knowledge.

Example

A sends B a telegram revoking his offer.

As against A, the revocation is complete when the telegram is sent beyond A's control.

As against B, the revocation becomes complete only when B receives and knows about it.

Byrne v. Van Tienhoven (1880)

An offer was sent by post. Before the offeree accepted it, the offeror posted a letter revoking the offer.

The offeree accepted the offer before the revocation letter reached him.

The Court held that the revocation was ineffective because it had not yet been communicated to the offeree. Merely posting a letter of revocation was not enough to revoke the offer against him.

Thus, revocation must come to the knowledge of the person to whom it is addressed before it can operate against him.

SECTION 5 - REVOCATION OF PROPOSALS AND ACCEPTANCES

Section 5 deals separately with:

• revocation of a proposal; and
• revocation of an acceptance.

REVOCATION OF PROPOSAL

A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

Where acceptance is sent by post, communication of acceptance becomes complete against the proposer when the letter of acceptance is properly posted and goes beyond the acceptor's control.

Therefore, the proposer must revoke his offer before that stage is reached.

Example

A makes an offer to B by post.

Before B posts his acceptance, A may revoke the proposal, provided the revocation reaches B before the acceptance becomes complete against A.

Once B has properly posted the acceptance, A can no longer revoke the proposal.

REVOCATION OF ACCEPTANCE

Indian law also permits an acceptance itself to be revoked.

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

Since acceptance becomes complete against the acceptor only when it comes to the knowledge of the proposer, there may be a short period during which the acceptor can revoke an acceptance which he has already sent.

Example

B posts a letter accepting A's proposal.

After posting the letter, B changes his mind and sends a faster telegram revoking his acceptance.

If the telegram reaches A before or at the time when the letter of acceptance reaches him, the acceptance may be validly revoked.

If the letter of acceptance has already reached A, B can no longer revoke it.

This is an important feature of the Indian Contract Act. Although acceptance may already be complete against the proposer when it is dispatched, it may still be revoked by the acceptor before it becomes complete against him.

SECTION 6 - HOW A PROPOSAL IS REVOKED

Section 6 provides four modes by which a proposal may be revoked.

SECTION 6(1) - NOTICE OF REVOCATION

A proposal is revoked by the communication of notice of revocation by the proposer to the other party.

The revocation must reach the offeree before the offer has been validly accepted.

As seen in Byrne v. Van Tienhoven (1880), merely sending a revocation is not enough. It must come to the knowledge of the offeree before acceptance becomes effective against the proposer.

SECTION 6(2) - LAPSE OF TIME

A proposal is revoked by:

• the expiry of the time prescribed for its acceptance; or
• where no time has been prescribed, the expiry of a reasonable time without communication of acceptance.

What amounts to a reasonable time depends upon the nature and circumstances of the transaction.

For example, an offer relating to goods whose market price changes rapidly may remain open for a much shorter period than an offer involving property whose value is comparatively stable.

SECTION 6(3) - FAILURE TO FULFIL A CONDITION PRECEDENT

A proposal is revoked where the acceptor fails to fulfil a condition precedent to acceptance.

A condition precedent is a condition which must be satisfied before the offer can be validly accepted.

Example

A offers to sell goods to B on the condition that B must first furnish a bank guarantee.

If B fails to furnish the required guarantee, he cannot validly accept the offer contrary to that condition.

SECTION 6(4) - DEATH OR INSANITY OF THE PROPOSER

A proposal is revoked by the death or insanity of the proposer, if the fact of death or insanity comes to the knowledge of the acceptor before acceptance.

Therefore, the death or insanity of the proposer does not automatically revoke the proposal in every case.

If the acceptor learns of the proposer's death or insanity before accepting the offer, the offer stands revoked.

If the acceptor has no knowledge of the death or insanity and accepts the proposal before learning of it, Section 6(4) does not itself treat the proposal as revoked.

SECTION 7 - ACCEPTANCE MUST BE ABSOLUTE AND IN PROPER MANNER

For a proposal to become a promise, the acceptance must satisfy the requirements of Section 7.

ACCEPTANCE MUST BE ABSOLUTE AND UNQUALIFIED

Acceptance must be absolute and unqualified. It must correspond with the terms of the proposal.

If the person accepting the offer changes its terms or adds a new condition, there is no acceptance of the original offer. Such a reply ordinarily amounts to a counter-offer.

Example

• A offers to sell his house to B for ₹50 lakh.
• B replies, “I agree to buy it for ₹45 lakh.”
• B has not accepted A's offer. He has made a new offer to purchase the house for ₹45 lakh.

Hyde v. Wrench (1840)

Wrench offered to sell his property to Hyde for £1,000. Hyde replied with an offer of £950, which Wrench rejected.

Hyde later attempted to accept the original offer of £1,000.

The Court held that Hyde's offer of £950 was a counter-offer, which had the effect of rejecting the original offer. Once the original offer had been rejected by making the counter-offer, Hyde could not later revive it merely by attempting to accept it.

Thus, a counter-offer is not acceptance. It ordinarily brings the original offer to an end unless the original offer is renewed by the offeror.

COUNTER-OFFER AND REQUEST FOR INFORMATION

A counter-offer should be distinguished from a mere request for information.

If the offeree merely asks for clarification about the terms of the offer, without proposing a different bargain, the original offer does not necessarily come to an end.

Stevenson, Jacques & Co. v. McLean (1880)

An offer was made for the sale of iron. The offeree asked whether the seller would accept payment over a period of time.

The Court held that this was only an inquiry regarding the terms of the offer and not a counter-offer. Therefore, the original offer remained open and could still be accepted.

The distinction depends upon whether the reply merely seeks information or actually proposes different terms in place of the original offer.

ACCEPTANCE MUST BE MADE IN THE PRESCRIBED OR USUAL MANNER

Section 7 also provides that acceptance must be expressed:

• in the manner prescribed by the proposer; or
• where no manner has been prescribed, in some usual and reasonable manner.

Where a Particular Manner is Prescribed

Suppose A offers to sell goods to B and states that acceptance must be sent by registered post.

If B accepts through some other method, the acceptance does not automatically become invalid.

A may, within a reasonable time after the acceptance is communicated to him, insist that B must accept in the prescribed manner.

If A does not object within a reasonable time, he is treated as having accepted the acceptance made through the different mode.

Therefore, where the prescribed method has not been followed, the proposer must object within a reasonable time if he wishes to insist upon that method.

MERE SILENCE IS ORDINARILY NOT ACCEPTANCE

An offeror cannot ordinarily impose a contract upon another person by saying:

“If I do not hear from you, I shall treat your silence as acceptance.”

There must normally be some communication or conduct showing assent.

Felthouse v. Bindley (1862)

An uncle offered to purchase a horse from his nephew and wrote that if he heard nothing further, he would consider the horse his.

The nephew intended to sell the horse to his uncle but did not communicate his acceptance.

The Court held that there was no concluded contract because the nephew's intention to accept had not been communicated.

Thus, an offeror cannot ordinarily make the silence of the offeree amount to acceptance merely by saying so.

This does not mean that acceptance must always be made in words. Conduct which clearly shows acceptance may be sufficient, as recognised by Sections 8 and 9.

ACCEPTANCE MUST BE COMMUNICATED BY AN AUTHORISED PERSON

Where communication of acceptance is required, it must ordinarily be made by:

• the offeree himself; or
• a person authorised to communicate the acceptance on his behalf.

Powell v. Lee (1908)

A school committee decided to appoint Powell as headmaster. Before the decision was officially communicated, one member of the committee, who had no authority to do so, informed Powell about his selection.

The committee later appointed another person.

It was held that there had been no valid communication of acceptance because the information had been given by a person who was not authorised to communicate the committee's decision.

Therefore, knowledge of an internal decision obtained from an unauthorised person does not ordinarily amount to valid communication of acceptance.

ACCEPTANCE MUST BE MADE WHILE THE OFFER IS STILL OPEN

An offer can be accepted only while it is still in existence.

If the offer has already been:

• revoked;
• rejected;
• terminated by a counter-offer;
• allowed to lapse; or
• otherwise brought to an end,

a later attempt to accept it will not create a contract.

This is also illustrated by Hyde v. Wrench (1840), where the original offer could not be accepted after it had been rejected by a counter-offer.

SECTION 8 - ACCEPTANCE BY PERFORMING CONDITIONS OR RECEIVING CONSIDERATION

Section 8 recognises that acceptance need not always be made through spoken or written words.

Performance of the conditions of a proposal, or acceptance of any consideration for a reciprocal promise offered with the proposal, amounts to acceptance of the proposal.

ACCEPTANCE BY PERFORMANCE

Where an offer requires a person to perform a particular act, performance of that act may itself amount to acceptance.

This is especially important in the case of general offers.

Carlill v. Carbolic Smoke Ball Co. (1893)

The company advertised that it would pay £100 to anyone who used its smoke ball according to the prescribed directions and nevertheless contracted influenza.

Mrs Carlill knew of the offer, used the smoke ball as directed and still contracted influenza.

The Court held that she had accepted the offer by performing the conditions stated in it. She was not required to communicate in advance that she intended to accept the offer.

Thus, where an offer invites acceptance by performance, completion of the required act may itself constitute acceptance.

However, the person performing the act must ordinarily have knowledge of the offer. As seen in Lalman Shukla v. Gauri Dutt (1913), performance of the required act without knowledge of the offer does not amount to contractual acceptance.

ACCEPTANCE OF CONSIDERATION FOR A RECIPROCAL PROMISE

Section 8 also provides that acceptance of any consideration offered for a reciprocal promise may amount to acceptance of the proposal.

The law therefore looks at the conduct of the parties and not merely at formal words.

Example

A transport service carries passengers on payment of the prescribed fare.

B boards the vehicle and pays the fare.

The conduct of the parties is sufficient to create the contractual relationship even though neither party formally states, “I offer” or “I accept.”

Thus, acceptance may arise from conduct where that conduct clearly shows assent to the proposal.

SECTION 9 - EXPRESS AND IMPLIED PROMISES

Section 9 classifies promises according to the manner in which the proposal or acceptance is made.

EXPRESS PROMISE

Where the proposal or acceptance is made in words, the promise is said to be express.

The words may be:

• spoken; or
• written.

Example

A says to B, “I will sell my bicycle to you for ₹10,000.”

B replies, “I accept.”

The resulting promise is an express promise because the proposal and acceptance have been made in words.

IMPLIED PROMISE

Where the proposal or acceptance is made otherwise than in words, the promise is said to be implied.

An implied promise generally arises from the conduct of the parties or from the circumstances of the transaction.

Example

A operates a paid parking facility.

B enters the parking area, takes a parking ticket and parks his car.

Although the parties may not speak to each other, their conduct may give rise to an implied contractual relationship.

Brogden v. Metropolitan Railway Co. (1877)

Brogden had supplied coal to the Metropolitan Railway Company for many years. The parties later prepared a written draft agreement, but it was never formally executed in the manner originally contemplated.

Despite this, both parties continued dealing with each other for some time according to the terms of the draft agreement.

The House of Lords held that a contract had arisen from the conduct of the parties. Their conduct showed that they had accepted and acted upon the terms of the agreement.

Thus, a contract need not always arise from formally spoken or written words. Where the conduct of the parties clearly shows a proposal and acceptance, the law may recognise an implied promise.

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