One of the early steps in the formation of contract lies in arriving at an agreement between the contracting parties by means of offer and acceptance. One party makes a definite proposal to the other, and that other accepts it in its entirety.
Offer
An offer is also called a proposal. Sec.2 (a) of the 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”.
The person making the proposal is called the “proposer”, or “offeror” and the person to whom the proposal is made is called the “offeree”.
Essentials of Valid Offer
- It must contain definite, unambiguous and certain and not loose and vague terms.
- It must intend to give rise to legal relationship. A social invitation, even if it is accepted does not create legal relationship, because it is not so intended.
- It must be distinguished from a quotation or an invitation to offer.
- An offer may be made to an individual or addressed to the world at large. An offer is called a specific offer when it is made to a particular person.
- Offer must be made with a view to obtaining the assent. The offer to do or not to do something must be made with a view to obtaining the assent of the other party addressed and not merely with a view to disclosing the intention of making an offer.
- An offer must be communicated to the offeree. Section 4 lays down that the communication of an offer is complete only when it reaches the offeree. So, an offer binds the offeror only when the offeree has the knowledge of the offer.
Acceptance
Section 2 (b) of the Indian Contract Act defines acceptance as,
“When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted becomes a promise”.
An offer, when accepted, becomes a contract. Acceptance may be express or implied. It is express when it is communicated by words spoken or written or by doing some required act. It is implied when it is to be gathered from the surrounding circumstances or the conduct of the parties.
Essentials of Valid Acceptance
- Acceptance must be absolute and unconditional and should correspond with the terms of the offeror. Otherwise, it amount to counter offer which may be accepted or rejected by the offeror.
- An offer can be accepted only by the persons to whom the offer is made. Acceptance must be communicated in usual and reasonable manner. It may be made by express words, spoken or written or by conduct of the parties, i.e. by doing an act which amounts to acceptance according to the terms of the offer or by the offeree accepting the benefit offered by the offeror. Any method can be prescribed for the communication of acceptance. It must be according to the mode prescribed or usual and reasonable mode. Silence can never be prescribed as a method of communication. Hence, mere mental assent without expressing it and communicating it by means of word or an act, is not sufficient. For example: A wrote to B, “I offer you my car for Rs.10,000. If I don’t hear from you in seven days, I shall assume that you accept”. B did not reply at all. There is no contract.
- Acceptance must be made within a reasonable time. If any time limit is specified, the acceptance must be given within that time. If no time limit is specified, it must be given within a reasonable time. For example: On May 2, A offered to take shares in B company. He received a letter of acceptance on July 21. He refused to take the shares. Held, A was entitled to refuse as his offer had lapsed as the reasonable period during which it could be accepted had elapsed.
- Acceptance should be made before the offer lapses or is revoked or is rejected.
- Acceptance cannot precede an offer. If the acceptance precedes an offer, it is not a valid acceptance and does not result in a contract. For example: In a company, shares were allotted to a person who had not applied for them. Subsequently when he applied for shares, he was unaware of the previous allotment. The allotment of shares previous to the application is invalid.
- Communication of acceptance may be waived by the offeror.
Acceptance, once made, Concludes the Contract
The rule is that when once an offer is accepted, it concludes the contract. So, an acceptance is irrevocable. When a lighted match is applied to gun powder it produces something which cannot be recalled. Sir William Anson compares here the “gun powder” to “an offer” and “the lighted match” to “acceptance” and says that either the gun powder may be allowed to become damp or it may be removed before the lighted match is applied. So also an offer may be allowed to lapse for lack of acceptance or may be revoked before acceptance is given. But when once acceptance is given, it ripens into contract, just as when a lighted match is applied to gun powder it produces an explosion. Thus he emphasizes two things: (i) There cannot be an acceptance after revocation of the offer and (ii) When once there is an acceptance, there can be no revocation.