Case Study on

Offer, Acceptance & Revocation of Offer

Prepared for:

Fahmida Hasan Senior Lecturer

Department of Business Administration East West University

Prepared by: Taslima Akther Id: 2008-3-14-009 Section: 1 Bus361- Legal Environment of Business

Date of Submission: 30th Novembar 2011

The Case Doraemon is sitting with a group of his friends outside a restaurant by the river. He says that he will give taka 20,000 to anyone who can swim across the river. Doraemon puts the amount of money on the table to show the seriousness of his challenge. SpongeBob is not with Doraemons group but is sitting at the table next to Doraemon. He hears the promise but does not say anything. Suddenly a child falls into the water from the other side of the river. SpongeBob dives into the water and begins to swim to rescue. As SpongeBob is approaching to the child, Doraemon shouts out: dont think you are going to get my taka 20,000 because I am withdrawing the offer! SpongeBob nonetheless rescues the child and climbs out onto the other side of the harbor. We need to find out whether SpongeBob can claim the Prize money from Doraemon. For this I followed the approach where I stated the general law of contract, offer and acceptance which are applicable here with our case and tried to correlate the law with appropriate logic to answer the questions mentioned in the case.

Law of Contract According to section 2 (h) of the Indian contract act: An agreement enforceable by law is a contract. A contract, therefore, is an agreement the object of which is to create a legal obligation. From the above definition we find that a contract essentially consists of two elements 1. An Agreement: As per section 2 (e): every promise and every set of promise. Forming the consideration for each other is an agreement. Thus it is clear from this definition that a promise is an agreement. A promise is when a 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. In short an agreement is the sum total of offer and acceptance.

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2. Legal obligations: an agreement to become a contract must give rise to legal obligation. A duty enforceable by law. If an agreement is incapable of creating a duty enforceable by law, it is not a contract. Thus an agreement is a wider term than a contract Essential Elements of valid contract: As defined in section 2 (h) a contract is an agreement enforceable by law. To be enforceable by law an agreement must possess the essential elements of a valid contract as contained in sections 10, 29 and 36. In below a few essential elements of contracts are discussed which will help us identify whether in the case mentioned earlier actually created a valid contract or not. 1. Offer and acceptance: There must be a lawful offer and a lawful acceptance of the offer. Thus resulting in an agreement. The adjective lawful implies that the offer and acceptance must satisfy the requirement of the contract act in relation thereto. 2. Intention to create legal relations: There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate legal relations, and as such they do not give rise to a contract. An agreement to dine at a friends house is not an agreement intended to create legal relations and therefore is not a contract. Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts. 3. Lawful consideration: The third essential element of a valid contract is the presence of consideration. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something. The something given or obtained is the price for the promise and is called consideration. Subject to certain exceptions. Gratuitous promises are not enforceable by law.

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Contract from the point of view of mode of creation We can differentiate the contracts that are created based on the way or mode of creation of the contract. One of the modes of contract creation is, Implied Contract: Where both offer and acceptance constituting an agreement enforceable at law are made otherwise than in words. i.e., by acts and conduct of the parties, it is an implied contract. Contract from the point of view of the extent of execution: Executed Contract: A contract is said to be executed when both the parties in a contract have completely performed their share of obligation and nothing remains to be done by either party under the contract. Here another related point comes into action which is Unilateral contract. Where only one of the parties to a contract has performed his share of obligation and the other party is still to perform his share of obligation then also the contract is called executed and these sort of executed contract is called unilateral contract. A mentionable example is listed on the book, the example states M advertises a reward of Tk. 1000 to anyone who finds his missing son. B knowing the offer finds the missing boy and brings to him. As soon as B traces the boy there comes into existence an executed contract because B has performed his share of obligation and it remains for M to pay the amount of reward to B. The Proposal or Offer The word proposal and offer are synonymous and are used interchangeably. Section 2 (a) of 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. This definition reveals the following three essentials of a proposal

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i) It must be an expression of willingness to do or to abstain from doing something. ii) The expression of willingness to do or to abstain from doing something must be to another person. There can be no proposal by a person to himself. Before going in more detail about offer we should make some points clear. A promisor is the person making proposal or offer; it is also referred as offeror. The person to whom the offer is made is called offeree and the person accepting the offer is called Promisee or acceptor. Legal Rules regarding a Valid Offer A valid offer must be in conformity with a few rules. Some mentionable rule relating to our case is mentioned below. 1. An offer may be express or implied: An offer may be made either by words or by conduct. Am offer which is expressed by words spoken or written is called an express offer and the one which is inferred from the conduct of a person or the circumstances of the cases is called implied offer. 2. An offer must contemplate to give rise to legal consequences and be capable of creating legal relations: If the offer does not intend to give rise to legal consequences, it is not a valid offer in the eye of law. An offer to a friend to dine at offerors place is not a valid offer even though it is accepted and there is consideration. Because in social agreement or domestic arrangement the presumption is that the parties do not intend legal consequences to follow the breach of contract. 3. The terms of the offer must be certain and not loose or vague:

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If the terms of the offer are not definite and certain it doesnt amount to a lawful contract. 4. An offer may be specific or general An offer is said to be specific when it is made to a definite person or persons. Such an offer can be accepted by only that person or persons. Such an offer can be accepted only by the person or persons to whom it is made. Om general offer the offer is open for general public or public at large. Such offers may be accepted by performance of the conditions by an individual person in order to give rise to contractual obligation to pay reward. 5. An offer must be communicated to the offeree: An offer is only effective only when it is communicated to the offeree. Until the offer is known to the offeree, there can be no acceptance and no contract. Revocation of offer An offer can be revoked, lapsed of become invalid in few circumstances, a few are mentioned below An offer lapses after stipulated or reasonable time An offer lapses by not being accepted in the mode prescribed An offer lapses by rejection Revocation by non-fulfillment of a condition precedent to acceptance The Acceptance A contract as already observed, emerges from the acceptance of an offer. There are some legal rules regarding a valid acceptance. Mentionable ones are given below. 1. Acceptance must be given only by the person to whom the offer is made:

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An offer can be accepted only by the person or persons to whom the offer is made and with whom it imports an intention to contract. 2. Acceptance must be absolute and unqualified: In order to be legally effective it must be an absolute and unqualified acceptance of all the terms of the offer. Even the slightest deviation from the terms of the offer makes the acceptance invalid. In effect a deviated acceptance is regarded as a counter offer in law.

3. Acceptance must be given within a reasonable time: To be legally effective acceptance must be given within the specified time limit. If any and if no time is stipulated, acceptance must be given within a reasonable time because an offer cant be kept open indefinitely. 4. Acceptance must succeed the offer: Acceptance must be given after receiving the offer. It should not precede the offer. Communication of offer, Acceptance and Revocation: Communication of an offer follows certain rules. In below the rule how communication of offer, acceptance and revocation are done is given, 1. Communication of an offer: The communication of offer is complete when it comes to the knowledge of the person to whom it is made. 2. Communication of revocation

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The communication of a revocation is complete when the communication of revocation is made. But there is a time during which an offer or acceptance can be revoked. Section 5 states that, A proposal may be revoked at any time before the communication of acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked as against the acceptor but not afterwards.

Analysis of The Case In our case we will try to identify whether SpongeBob and Doraemon actually made valid offer and acceptance. If they did then it will succeed towards a proper agreement. Then with the situational analysis we will be able to find whether there is any legal obligation. So after reviewing all these we will be finally able to decide whether there is actually a contractual relation between SpongeBob and Doraemon In our case we can say there is an lawful offer and acceptance which will be justified with further logic and explanation in offer and acceptance part. There was an intention to create legal relation as Doraemon was emphasizing his seriousness of offer by putting the money in front of the table. Although the offer was made in front of friends of Doraemon, He made it a general offer by stating that he offer is open for anyone. So it is not just a social offer since there was presence of other person around him such as SpongeBob. And there is a lawful consideration since SpongeBob offered 20,000 tk. This can be treated as lawful consideration to his offer. So we can say that the case has essential element required for a contract, Since here Doremon expressed his offer on his own but the acceptance mode was through performance of the act which is completion of swimming across the river so we can say that it falls into the category of implied contract.

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The Aforementioned example is very much closely related to our case. And a similar scenario took place in our case. SpongeBob after hearing the offer swam across the river successfully. So he managed to complete the performance asked in the offer. Now Doraemon is yet to pay his prize money. So we can say that it is an executed contract and it falls under the category of unilateral contract where Doraemon is yet to finish is part of the contract. In our case Doraemon is offeror. Since the offer doesnt specify any single or particular persons anyone willing to take the offer is offeree and since SpongeBob accepted the offer through specific performance required he is the Promisee/acceptor. If we relate the proposal made by Doraemon we can see, i) Doraemon expressed his offer that someone should cross the river by swimming ii) He didnt made the offer to himself, he made the offer open for others So we can say that the there was a offer made by Doraemon. Though it is yet to say that whether the offer was valid or not. From Doraemons end it was an express offer where he specified what performance he requires. The offer although was made in social situation it was general and not specified only within his friends so it can give rise to legal consequence. The terms were clear and specified. The offer was in general nature which was open for anyone who can swim across the river. The offer that Doraemon expressed SpongeBob heard about the offer so it is also communicated to the offeree. In our case the offer doesnt get revoked itself as the performance was done within a reasonable time, no one rejected his offer instead there was implied acceptance. It was done according to the mode prescribed. As SpongeBob did cross the river by swimming. And there was no specific condition in the offer so the offer stands valid until it is revoked by Doraemon.

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Since the offer was made general anyone can accept it. So SpongeBob can take the offer. SpongeBobs acceptance was unqualified and absolute as he performed the specific performance that is swimming across the river accordingly. The acceptance was not delayed that much so we can say that acceptance was done within a reasonable time. Finally the Acceptance succeeded the offer. SpongeBob swam across the river after knowing about the offer. So here offer came first and then the specific performance. The communication of offer is done accordingly, as SpongeBob knew about the offer before jumping into the river. Furthermore there was communication of revocation by Doraemon. But that doesnt stay valid since he expressed the revocation of his offer after the acceptance. According to section 5 A proposal may be revoked at any time before the communication of acceptance is complete so Doraemon cant revoke his offer after the acceptance by SpongeBob. Now, since the essential element for both offer and acceptance was present in our case we can say there is an existence of contractual relation between SpongeBob and Doraemon. The communication of revocation by Doraemon doesnt stay valid. Thus the contract remains as a unilateral offer, where SpongeBob has already done his specified performance and Doraemon is yet to complete his portion of the contract. That is to pay SpongeBob the prize money of 20,000 taka, which he declared earlier. So we can come into conclusion that SpongeBob can claim the money under the law of contract.

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