CHAPTER-II CONTRACT LAW Name:

Subject: Business Regulations.

INDIAN CONTRACT ACT- 1872

DEFINITION:
“Contract is an agreement creating and defining obligation between parties” -- According to Salmond
“An agreement between two or more persons which is intended to be enforceable at law and is constituted
by the acceptance by one party of an offer made to him by the other party to do or to obtain from doing
some act”

INDIAN CONTRACT ACT- 1872

A contract is defined in section 2(h) of the Indian contract Act as “An agreement enforceable by law”. Thus
only those agreements that create legal obligation are contracts. So if an agreement creates a social,
moral/religious obligation, it is not enforceable by law, and as such that agreement cannot be elevated to the
status of a contract.

ESSENTIAL ELEMENTS OF A CONTRACT:

Elements of a contract

An agreement Enforceability at law

I. Agreement: an agreement is defined in section 2(e) as “every promise or every set of promises
forming the consideration for each other”.
A promise- defined in section 2(b) as “A proposal when accepted becomes a promise”.
Agreements are of two types
Types of agreement

Un-enforceable agreements Enforceable agreement

i. Un-enforceable agreement: it is simply a gentleman’s promise which may or may not be fulfilled by
the promise.

Party A makes an offer Un-enforceable agreement

They are mutually agreed Agreement It is not a contract,

it remains only an agreement
Party B gives acceptance

All these agreements remains only an agreement between the parties and they never become an contract in
the eyes of law. Because they are merely social or domestic arrangements.

ii. Enforceable agreement: in which the aggrieved party has a right to approach a law court to get the
agreement enforced and the other party is held liable either to perform the agreement or to face the
consequences for breach of the agreement. All these agreements which are enforceable at law are
“contracts”.

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 Party A makes an offer contract enforceable at law

They are mutually agreed Agreement It becomes a valid contract

Party B gives acceptance

iii. Enforceable at law: an agreement to becomes a contract must give rise to a legal obligation. The
common acceptance formed and communicated between the two parties must create legal
relations and not merely the relations which are purely social or domestic in nature.
Thus, Contract= Agreement + Enforceability at law.

ESSENTAIL ELEMENTS OF A VALID CONTRACT:

A contract is an agreement which is enforceable by law; it is enforceable only when all the conditions of
enforceable are fulfilled. These conditions are satisfied, which may be called as essentials elements of valid
contract.

Offer and acceptance

Mutual consent of the parties

Legal obligation

Free consent

Competent to contract

Lawful consideration Valid contract

Lawful object

Not declared to be void

Certain

Performance of must not be impossible

Necessary legal formalities

1. There must be an offer and its acceptance: in an agreement there must be at least two parties, one of
them making the offer and the other accepting it. The offer when it accepted becomes agreement.
2. There must be mutual consent of the parties: the parties to an agreement must have the mutual
consent i.e., they must agree upon the same thing and in the same sense. This means that there must be
consensus ad idem ( ie., meeting of minds).
3. There must be legal obligations: an agreement must create legal obligations(i.e., an obligation which is
enforceable by law). An obligation is the legal duty to do or abstain from doing a definite act or acts.
Moreover, the parties must have the intension to create legal obligations. Eg: A invited B to a dinner. B
accepted the invitation. It is a social agreement. It A fails to serve dinner to B, he cannot go to court of
law for enforcing the agreement. Similarly, if B fails to attend the dinner, A cannot go to court of law
for enforcing the agreement.
4. There must be free consent of the parties: the contract must have been made with free consent of the
parties. It may be noted that the consent is not free, when it is obtained by coercion, undue influence,
fraud, misrepresentation of facts etc.

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5. The parties must be competent to contract: the parties to an agreement must be competent to contract.
In other words, they must be capable of entering into the contract. It may be noted that minor, or persons
of unsound mind are not competent to contract. If the parties are not competent to contract then no valid
contract comes to existence. Eg: A, minor, borrowed Rs. 500from B and agreed to repay it within two
months. This is not a valid contract as A is not competent to contract.
6. There must be lawful consideration: the agreement must be supported by a lawful consideration. The
lawful consideration is that which is not fraudulent, forbidden by law, immoral or opposed to public
policy etc. if the consideration is not lawful, then no valid contract comes into existence.
Eg: A promised to obtain an employment for B in a government department, and B promise to pay
Rs. 10,000 to A. in this case, the agreement is not valid as the consideration of it is unlawful.
7. There must be lawful object: the object of the agreement must be lawful. It may be noted that a lawful
object is that which is neither fraudulent by law, forbidden by law, immoral or opposed to public policy
etc. if the consideration is not lawful, then no valid contract comes into existence.
Eg: A,B and C entered into an agreement for a division of gain, among them, which is to be acquired
by them by fraud. In this case, the agreement is not valid as its object is unlawful.
8. The agreement must not be declared to be void: the agreement must not have been expressly declared
to be void by any law in force in the country. If certain agreements are expressly declared to be void by
the law of the country, then such agreement if entered into shall not be enforceable by court of law.
9. The agreement must be certain: the meaning of the agreement must be certain. In other words, an
agreement whose meaning is not certain is not valid.
Eg. A agreed to sell to B “a hundred tones of oil”. Hence it is not clear what kind of oil is intended
to be sold. In this case, the agreement is not valid as it is not certain.
10. The performance must not be impossible: The performance of an agreement must be possible. An
agreement to do an impossible act is not valid.
Eg. A agreed with B to discover treasure by magic. In consideration, B Agreed to pay Rs. 500 to A.
in this case, the performance of the agreement is impossible, therefore it is not a valid contract.
11. Necessary legal formalities: A contract may be an oral or in written. If, however, a particular contract is
required by law is to be in writing, it must comply with the necessary formalities as to writing,
registration and attestation, if necessary. If these legal formalities are not carried out, then the contract is
not enforceable at law.

CLASSIFICATIONS OF CONTRACTS:

Classifications of contract

According to According to According to According to

Enforceability formation performance English law

Valid contract express contract executed contract

Void agreement
Void contract
Voidable contract
Illegal agreement
Unenforceable contract
implied contract executor contract
quasi contract unilateral contract
bilateral contract
Simple contract formal contract

Contract contract
Under seal of record

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I. According to legal validity:
1. Valid contract: a contract which satisfies the legal requirements laid down in section 10 of the Act,
is known as a valid contract. A valid contract is an agreement, which is blinding and enforceable at
law.
2. Void agreement: “an agreement not enforceable by law is said to be void”. A void agreement has no
legal effect. It confers no rights on any person and creates no legal obligations. Eg. agreement with a
minor is a void.
3. Void contract: A void contract is that which is not enforceable by law. As a matter of fact, a void
contract is not at all a contract, as it is without any legal effect. The term void contract, is defined in
section 2(j) of the Indian contract act, which reads as under. “A contract which ceases to be
enforceable by law becomes void when it ceases to be enforceable”.
4. Voidable contract: A “free consent” is an essential element of a valid contract. If the consent of the
party is not free then such party may avoid the contract. Such contract is voidable at the option of the
party whose consent is not free. The term voidable contract is defined in section 2(i) of the Indian
contract act, “An agreement which is enforceable by law at the option of one or more of the parties
thereon, but not at the option of the other or others, is voidable contract”.
5. Illegal agreement: an agreement is illegal and void if its object or consideration: is forbidden by
law; or is of such a nature that, if permitted, it would defeat the provision of any law; or is
fraudulent; or involves or implies injury to the person or property of another; or the court regards it
as immoral, or opposed to public policy.
6. Un-enforceable contract: are those which cannot be enforced in a court of law because of some
technical defects. There are special provisions which provide that a contract must be in writing, or it
must be registered, or it must be properly stamped. It must be attested etc., if such formalities are not
properly observed, the contract cannot be enforced in a court of law.

II. According to formation:

1. Express contracts: an express contract is that which is made in writing or by the words of the
mouth. Section 9 of the Indian contract Act contains this provision, which reads as under:
A promise made in words is called an express promise. And the express promises result in express
contracts
2. Implied contracts: An implied contract is that which is not made in words. Such contracts come
into existence on account of act or conduct of the parties. In continuing course of dealing. The acts or
conduct of the parties may give rise to implied contracts.
3. Quasi contracts: are not contracts as there is no intention of the parties to enter into a contract. In
fact it is an obligation, which the law creates in the absence of any agreement. Eg: A, a tradesman,
left certain goods at B’s house by mistake. B treated the goods as his own. In this case, B is bound to
pay for the goods.

III. According to performance:

1. Executed contract: when a contract has been completely performed, it is termed as executed
contract. Eg: A agreed to sell his horse to B for Rs. 1000. B paid the price and A delivered the horse.
It is executed contract as both the parties have performed their respective obligations.
2. Executory contract: executory contract is that where under the terms of a contract something
remains to be done by the parties. Eg; A agreed to sell his car to B for Rs. 30,000. Car was to be
delivered by A on 15th if next month , and price was to be paid by B on 25th of that month. It is an
executory contract, as both the parties have to perform their respective obligation in future.
3. Unilateral contract: it is one sided contract in which only one party has to perform his obligation.
The other party is already performed his obligation by doing some act. Eg: A promised to pay Rs.
100 to anyone who finds his lost dog and returned it to A. it is a unilateral contract, which comes
into existence when the dog is found. Now, only A has to perform his obligation by paying Rs. 100 to
B, because B had already performed his promise on the other.
4. Bilateral contract: is a two sided contract in which both the parties have to perform their respective
obligation. Eg: A promised to paint a picture for B, and B promised to pay Rs.100 to A. it is a
bilateral contract.

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IV. According to contracts in English law:
1. Formal contracts: formal contracts are those whose validity or legal force is based upon their form
and they are valid even without consideration. They are two types:
i. Contracts under seal: contract under seal is one which derives and binding force from its
form alone. It is in writing and is signed, sealed and delivered by the parties. It is also called a
deed or a specially contract. The following contracts should be under seal, otherwise they will
not be valid:
a. Contracts without consideration
b. Lease of land for period of more than three years
c. Contracts by corporations; and
d. Contracts with British shipping.
ii. Contracts of record: contracts of record are not contracts in the real sense as the consensus-
ad-idem. They are only obligations imposed by court upon a party to do or refrain from doing
something. A contract of record is either a judgment of a court or recognizance. An
obligation imposed by the judgment of a court and entered upon its records is often called a
contract of record.
2. Simple contracts: All contracts other than the formal ones are called simple contracts or parole
contracts. They may be made orally, in writing or implied by contract.

Distinguished between Agreement and Contract

Point of difference Agreement Contract

Every promise and every set of promises

An agreement enforceable by law
1. Meaning forming consideration for each other is n
is a contract
agreement

Agreement and enforceability

2. Elements Offer and acceptance make an agreement
make a contract

3.Legal It may not create any legal obligation. All It will create a legal obligation.

Effect agreements are not contract. All contracts are agreement.

It is a specific contract of an
4. Concept It is wide concept
agreement

5. Result Agreement is not a concluded contract Contract is a concluded agreement

OFFER AND ACCEPTANCES:

Offer: It is an established principle that an agreement arises only when an offer is made by one person and
is accepted by the other person, to whom it is made. Thus, an offer is the starting point in the making of an
agreement.

Definition of offer: the term ‘offer or proposal’ is defined in section 2(a) of the Indian contract Act, which
reads as under:
“when one person signifies to another his willingness to do or obtain from doing anything, with a view to
obtaining the asset of that other to such act or abstinence, he is said to make a proposal”
The person making the offer or proposal is called “proposer”, “offeror” or “Promisor”. The person to whom
the offer or proposal is made is called ‘proposee’, ‘oferee’. When the offeree accepts the offer, he is called
‘promisee or ‘acceptor’.

In English Law a proposal is called as an offer. An offer is a proposal by one party to enter into a legally
binding agreement with another.
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Section 2 (a): When one person signifies to another his willingness to do or to abstain from doing anything
with a view to obtain assent of that other to such act or abstinence, then he is said to have made a proposal.

Section2(c): The person making the offer is known as the offerer, proposer or promisor and the person to
whom it is made is called the offeree or promisee.

Positive and negative offer: When an offer is to do something then that offer is known as positive offer.
Eg:A offers to sell his car to B. When an offer is to abstain from doing something then that offer is known as
negative offer. Eg: A offers not to file a case against B.

ESSENTIALS OF A VALID PROPOSAL OR LEGAL RULES AS TO AN OFFER:

1. A Proposal must contain a request

2. Proposer cannot dictate terms. (Given orders)
3. A proposal must be creating legal relationship between the parties. (Capable of creating legal
relation) A social invitation even if it is accepted does not create legal relation.
Leading case Balfour Vs Balfour: Mr Balfour was carrying on business in Ceylon. He promised to pay a
monthly allowance of 30 pounds to his wife Mrs. Balfour living in England for the sake of health. It was
held that Mrs.Balfour can’t claim the allowance because there was no intention to create legal obligation.
4. A mere statement of intention is not an offer: Even though the other person has acted upon it. Eg:
price list, catalogues, advertisements, window display, invitation by the company to the public to buy the
share of the company etc. are merely statements of intention. They are not considered as offer but they
are an invitation to offer. Hence an invitation to offer is not an offer because it does not create legal
relation. Case : Harvey Vs Facey : H telephoned to F asking him to inform whether he would sell
Bumper hall pen and if so at what price. F informed H that the lowest price was 900 pounds without
stating that he is willing to sell at that price. H sent a telegram stating that he would buy at that price. F
gave no reply. It was held that there was no contract because there was no offer.

5. Offer must be made to definite person.

6. The offer should not contain any term the non-compliance of which amounts to acceptance or
Terms of offer must be definite certain and unambiguous i.e., not vague. Eg: A says to B “ I will sell
u a car” A has 3 different cars. The offer is not definite. If the terms of an offer is vague, it will result in
vague agreement. Hence the court will not enforce it.

7. Offer must be communicated: An offer must be communicated to the person to whom it is made. A
person cannot accept an offer unless he has the knowledge of the offer. Case : Lalman Vs Gauridutt : G
sent his servant L to find out his missing nephew, he then announced a reward of Rs.501 to the person
who might find out the boy. L found out the boy without knowing the reward after sometime he claimed
the reward. Held that he could not claim the reward because he did not know about the offer of reward
when he found the boy.

8. offer must be made in order to get the consent: The offer to do or not to do something must be made
so as to get the assent of the person to whom it is made. It must not be merely conveying the intention of
making an offer.

9. Offer may be conditional but the condition must be clearly communicated, eg: conditions printed on
the back of the ticket issued by the railway company.

10. The offeror must intend to be bound by it as soon as it is accepted by the other.

11. An offer may be positive or negative

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12. The offer may be to the world at large

13. Two identical cross-offers do not result in a contract.

TYPES OF OFFER
I. Express offer - When the offeror expressly communication the offer the offer is said to be an
express offer the express communication of the offer may be made by Spoken word /Written
word
II. Implied offer – when the offer is not communicate expressly. An offer may be implied from:-
The conduct of the parties or The circumstances of the case
III. Specific Offer:- It means an offer made in
(a) a particular person or
(b) a group of person: It can be accepted only by that person to whom it is made
communication of acceptance is necessary in case of specific offer.
IV. General offer: - It means on offer which is made to the public in general.
• General offer can be accepted by anyone.
• If offeree fulfill the term and condition which is given in offer then offer is accepted.
• communication of acceptance is not necessary is case of general offer Example
Company advertised that a reward of Rs.100 would be given to any person who would suffer from
influenza after using the medicine (Smoke balls) made by the company according to the printed
directions.
One lady, Mrs, Carlill, purchased and used the medicine according to the printed directions of the
company but suffered from influenza, She filed a suit to recover the reward of Rs.100. The court held
that there was a contract as she had accepted a general offer by using the medicine in the prescribed
manner and as such as entitled to recover the reward from the company.
Carlill v Carbilic Smoke Ball Co. 1893

V. Cross offer:- When two parties exchange identical offers in ignorance at the time of each
other’s offer the offer’s are called cross offer.
Two cross offer does not conclude a contract. Two offer are said to be cross offer if
1. They are made by the same parties to one another
2. Each offer made in ignorance of the offer made by the
3. The terms and conditions contained in both the offers’ are same.

Example : A offers by a letter to sell 100 tons of steel at Rs.1,000 per ton. On the same day, B also
writes to A offering to buy 100 tons of steel at Rs.1,000 per ton.
When does a contract come into existence: - A contract comes into existence when any of the
parties, accept the cross offer made by the other party.

VI. Counter offer:- when the offeree give qualified acceptance of the offer subject to modified and
variations in the terms of original offer. Counter offer amounts to rejection of the original offer.
Legal effect of counter offer:-
(1) Rejection of original offer
(2) The original offer is lapsed
(3) A counter offer result is a new offer.

In other words an offer made by the offeree in return of the original offer is called as a counter offer.
Example:
A offered to sell his pen to B for Rs.1,000. B replied, “ I am ready to pay Rs.950.” On A’s refusal to
sell at this price, B agreed to pay Rs.1,000. Held, there was not contract as the acceptance to buy it
for Rs.950 was a counter offer, i.e. rejection of the offer of A. Subsequent acceptance to pay Rs.1,000
is a fresh offer from B to which A was not bound to give his acceptance.

VII. Standing, open and continuous offer:- An offer is allowed to remain open for acceptance over
a period of time is known as standing, open or continually offer. Tender for supply of goods is a

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 kind of standing offer. Example: When we ask the newspaper vendor to supply the newspaper
daily. In such case, we do not repeat our offer daily and the newspaper vendor supplies the
newspaper to us daily. The offers of such types are called Standing Offer.

Counter offer: A counter offer is a rejection of the original offer and making a new offer. The new offer is a
counter offer. Case : Hyde Vs Wench : A offered to sell his farm to B for Rs1000. B stated that he would buy
for Rs.950. A refused to sell at that price. B then expressed his willingness buy for Rs. 1000. held that there
is no contract because the offer of to buy for Rs.950 is a counter offer. Next offered to purchase it for is no
contract until this counter offer is accepted by the original proposer.

Tender as a definite offer: When tenders are invited for the supply of specified goods or services each
tender submitted is an offer. The party inviting tenders may accept any tender he likes and thus make a
binding contract. A invites tenders for the supply of 1 lakh bricks. X Y & Z submit the tenders A accepts
excess tender there is no binding contract.

Standing offer: An advertisement inviting tenders is not an offer. It is called as a standing or open offer or
continuing offer. The person making such offer can revoke it, before any order is placed. A contact arises
only when as order is placed on the tender. The tenderer can withdraw his tender before an order is placed.
Each separate order is separate contract Case : Harris Vs Nickerson : The advertisement that auction sale
will be held on a p[particular day at a particular time and place is not a proposal but only declaration of an
intention and an invitation to proposal.

Offer Vs invitation to offer: A person when making a proposal intends to be bound by it as soon as it is
accepted by the other, it is an offer.

On the other hand, a person invites others to make an offer and intends to do some further act before he is
bound by it, it is an invitation to offer.

ACCEPTANCE

It is an expression of willingness by the offeree to be bound by the terms of the offer. When the offeree
gives his consent to the offer then the offer is said to be accepted.

Section 2(b): When the offeree signifies his assent to the offer is said to be accepted. A offer when accepted
become a promise.

Acceptance may be express or implied. If the acceptance is in the forms of words either written or spoken it
is called express acceptance.

If the acceptance is in the form of behavior or conduct of the parties then it is called a implied acceptances.

At an auction sale ‘s’ is the highest bidder, the auctioneer accepts the offer by ringing the bell on the table.

ESSENTIAL AND LEGAL RULES IN THE ACCEPTANCE OR ESSENTIALS OF A VALID

ACCEPTANCE:

The acceptance of an offer is very essential for contract. Hence the acceptance must fulfill or satisfy the
following condition.

1. It must be absolute and un-qualified:

Section 7(1): An acceptance must be absolute and unqualified. If there is change in terms of the
acceptance then it is not an acceptance but a counter-offer and there is no contract until this counter-offer
is accepted by the original offerer. Case: Routledge vs ghant: A offered b to purchase a house with

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 possession from 25th july. B accepted by suggesting possession from 1st august. Held there was no
contract.

Eg: A says to B “ I offer to sell my car for Rs. 5,000 “ B replies “I will purchase it for Rs 4,000 “ it is
not an acceptance but a counter offer.

2. It must be communicated to the offerer:

Acceptance must be communicated to the offerer himself. If it is not communicated to the offerer,
contract is not created. Hence the intensions must be communicated. Case: Brogdem vs Metropolitan
railway co.: A draft agreement for the supply of coal was sent to the manager of a railway co. for
acceptance. The manager wrote the word “approved” on the agreement. But by oversight the document
was kept in the drawer itself. Held that there was no contract.

In some cases acceptance need not be communicated when certain conditions are satisfied or some
required act is done. Leading case: Carlill vs Carbolic smoke ball co.: Carlill used the smokeball of the
co. according to the instructions and was affected (contracted) by influenza. It is amounted to
acceptance of the offer by doing the required act and she could claim the compensation.

3. It must be according to prescribed manner:

If the offerer prescribe the mode (manner) of acceptance, then the acceptance must be given in the same
manner. If the acceptance is not in the prescribed manner, the offerer may indicate to the offeree within a
reasonable time that the offer must be accepted in the prescribed manner only .If he does not inform the
offeree, then he is said to have accepted. Eg: A makes an offer to B and says, “If u accept the offer, reply
by wire”. B sends the reply by post. It will be a valid acceptance unless A informs B that the acceptance
is not according to the prescribed manner. If the offerer does not prescribe the manner of acceptance
then it must be in some usual and reasonable manner.

4. It must be given within a reasonable time:

If the offer specifies any time limit, then acceptance must be given within that time. If the time limit is
not specified, acceptance must be given within a reasonable time. Case: Ramsgate Victoria hotel vs
Mon******: M offered to take shares in B and co. on 6th june. He received a letter of acceptance on nov
25th. Held that M could refuse because the reasonable time 3 months during which the offer could be
accepted was over (or lapsed)

5. It cannot precede an offer: If the acceptance is given before an offer is made, it is not a valid
acceptance and hence contract is not created.Eg: In a co. a shareholder is allotted a certain number of
shares. When he has not applied for it, after sometime, he applies for the shares without knowing the
previous allotment of shares. The allotment (of shares) made by the co. previous to the application for
shares is not valid.
6. The acceptor must have an intension to fulfill the terms of the promise:
If the acceptor has no such intension, then the acceptance is not valid.

7. It must be given by the party to whom the offer is made.

8. It must be given before the offer lapses or is withdrawn

9. Mental acceptance is no acceptance at all: Acceptance must be communicated to the offerer either
expressly or by conduct. Mental acceptance or silence cannot be considered as the sign of acceptance unless
the offerer in the previous case indicated that his silence means that he accepts. Hence, there must be some
external manifestation of the intension of the acceptor. Eg1:A wrote to B “I offer you my car for Rs.10,000.
If I don’t hear from u within 7 days I shall assume that you accept”. B did not reply at all. There is no
contract. Eg2: A tells B that he intends to marry C, but tells nothing to C of his intension. There is no
contract even if C is willing to marry A. Case: Brogden vs Metropolitan railway co.: (refer 2nd point above)

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10. The acceptance must show an intention that acceptor is willing to fulfill the terms of the offer.

11. The acceptance may be expressed or implied.

Agreement to agree in future : If the parties have not agreed upon the terms of their contract, but have
made an agreement to agree in future, there is no contract. Case : Monteal Gas Co. Vs Vasey : A Co.
agreed with V that it would consider favorably the application of V for the renewal of his contract after
the expiry of V’s existing contract. Held there was no contract and Co. was not under obligation to
renew V’s contract.

COMMUNICATION OF OFFER, ACCEPTANCE AND REVOCATION

An offer and its acceptance must be communicated so as to create binding contract, unless an offer is
communicated, it cannot be accepted. Acceptance without the knowledge of the offer is no acceptance.

- Rules regarding communication of offer : (Sect 4, Para 1):

The communication of an offer is complete when it comes to the knowledge of the person to whom it is
made. Eg: A proposes to sell a house, by a letter to B at a certain price. The letter is posted on 10th
August. It reaches B on 12th August The communication of a offer is complete only when B receives the
letter. ie 12th August.

- Rules regarding communication of acceptance: (sect 4 pare 2):

The communication of acceptance is complete, 1)as against the proposer, when it is put in the course of
transmission ie. When the letter is posted. 2) As against the acceptor, when it comes to the knowledge of
the proposer ie., when the letter is receive by the proposer.

Eg: In the above eg. B accepts A’s proposal by letter sent by post on 13th August. The letter reaches A on
16th August. G or A the communication of acceptance is complete

When the letter is posted ie., 13th of August. For B communication of acceptance is complete when the
letter is received by A ie., 16th August.

The letter must be properly posted with a correct address. For any delay by the postal department the
parties are not responsible. As the general rule the contract would be complete as soon as letter of
acceptance is posted. Same principles also apply in case of telephonic communication.

The communication of offer and acceptance are studied under the following sub heads:

i. Communication of offer
ii. Completion of communication of offer
iii. Communication of acceptance
iv. Completion of communication of acceptance.

Revocation of proposal and acceptance : (sect 5) :

Revocation means “canceling”, “withdrawing” or “taking back”. Both proposal and acceptance can be
revoked at any time before the communication of the proposal or acceptance is complete.

Revocation of proposal : (Sect 5 para 1):

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

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 Revocation of acceptance : (Sect 5 para 2) :

An acceptance may be revoked at any time before the communication of acceptance is complete as
against the acceptor, but not afterwards. Eg. A offers to sell his house to B. A posts the offer letter to b
on the 1st August. B accepts the proposal and B posted the letter of acceptance on 4th August. The letter
reached A on the 6th of August.

A may revoke his offer ( at any time) before B posts his letter of acceptance ie.,4 th August but not
afterwards. B may revoke his acceptance (at any time) before the letter of acceptance reached A ie., 6 th
August but not afterwards.

Communication of revocation (sect 4) : It completes

1) A against the person who makes it : when it is put in the course of transmission to the person to
whom it is made so as to be out of power of the person who makes it
2) As against the person to whom it is made : When it comes to his knowledge. Eg. A sends a letter
of offer to sell his house to B. A may revoke his offer at any time before B posts the letter of
acceptance. Similarly B may revoke his acceptance at any time before the letter of acceptance
reaches A. Case : Byrne Vs Ventienheven : A offered to sell goods to B in New York on 1 st October
he sent the letter of offer to New York. B received the offer on 11th October, and immediately
telegraphed his acceptance on the 8th October A had no effect as by that time the contract was
already made.
Revocation of offer or proposal (sect 6 para 1) : When a proposal os revoked or offer comes to an
end. A proposal can be revoked in the following ways.

i. Revocation by communication of notice : (sect 6 para 1) : Offer can be revoked by sending notice
of revocation by the offerer to the offeree.
ii. Revocation by laps of time : para 2: If a time is prescribed for the acceptance of an offer then the
offer is revoked automatically when the prescribed time is over. If no time is prescribed then the
offer is revoked when the reasonable time is over.
iii. Revocation by non-fulfillment of a condition precedent to acceptance : para 3 : Offer is also is
revoked when the offeree fails to fulfill a condition before the acceptance
iv. Revocation by death or insanity : para4 4 : The offer is revoked by the death of insanity of the
offerer. But the offeree must know it (death or insanity) before acceptance. (If acceptance is given
without knowing such event then it is void acceptance.)
v. Revocation by counter offer: An offer is revoked if a counter offer is made i.e f the acceptor puts
conditions for acceptance.
vi. If the offer is not accepted in the prescribed or usual manner then also it is revoked.

Contract through post:

The rules relating to offer and acceptance by post are given below.

1) An offer sent through post may be accepted by post.

2) Communication of offer by post is complete only when it reaches the offeree. Eg:If a letter of offer
is sent by A to B is lost in the way, B does not know the offer and thus there is no offer.
3) An acceptance by post is complete when the letter of acceptance is correctly addressed, stamped and
posted in the letter box. Therefore even if the letter of acceptance is delayed or in the post, the
acceptance is complete. But if letter of acceptance is not correctly addressed or stamped and lost in
the post then, there is no acceptance at all.
4) It is in this case there is a difference between Indian law and English law. In English law, once the
letter of acceptance is posted, it cannot be revoked even by a telegram. Thus under English law an
acceptance cannot be revoked at all.
“Acceptance is to an offer what alighted match is to a train of gun-powder. It produces something which
cannot be re-called or un-done”. Explain this principle with example:

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 It is a quotation from Anson’s law of contract. It means that when an offer is accepted by the person to
whom it is made it becomes a contract and it cannot be revoked. But an offer may be cancelled by the
offerer before it is accepted by the offeree. From this we may conclude the following facts:

1) An offer will be effective until it is withdrawn. The offeree must know the withdrawal of the offer
before he accepts the offer.
2) If the letter of acceptance is not properly addressed, stamped and posted it cannot be considered as
acceptance. Hence the offer can be revoked, even such letter of acceptance is posted.
3) Sometimes the letter of acceptance may be written but not posted. Before letter of acceptance is
posted , a letter revoking the offer may reach the offeree. Hence there is no acceptance of an offer.
4) Mental acceptance is no acceptance. Case : Brogden Vs Metropolitan Railway company.

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