Business Law

1. Offer and Acceptance

2. Important Points:
 The first essential of a valid contract is an agreement i.e., offer and
acceptance.
 An agreement arises when one party, the offer or, makes an offer and the
other party to whom the offer is made i.e. the offeree accepts it.
 In every case, there must be both an offer and an acceptance.
 If either is lacking there is no agreement.
 In order to make a contract there must be a lawful offer by one party and
lawful acceptance of the offer by the other party.

3. Offer/Proposal:
“When one person signifies to
another his willingness to do or to abstain from doing any thing, with a view to
obtaining the assent of that other to such act or abstinence he is said to make a
proposal.”
This definition of an offer consists of two parts:
 There must be an expression of the willingness by one to another to do or to
abstain from doing something.
 The expression of willingness must be made to obtain the assent of the other
person to such act or abstinence.
Examples:
1. A offer to sell his watch to B for Rs.100 A is making an offer to B.
2. A says to B I am willing to sell my car for Rs.3 Lac Are you interested to buy it.
“A makes an offer to B.

4. Terms to Learn:
Offeror:
“The person making the offer is called the offeror.”
Offeree:
“The person to whom the offer is made is called the offeree.”
Promisor:
“The person accepting the offer is called the promisor or acceptor.”

5. Essentials of Valid Offer

6. Essentials of Valid Offer
 Express or Implied
 Legal Relations
 Definite & Clear
 Invitation to offer
 Specific or General
 Communicated to Offeree
 Negative Condition
 Conditions to offer
 Cross offer

7. 1) Express or Implied proposal: “When proposal is expressed words & writing
it is called express proposal.”, “An Implied offer appears from the actions
,conduct of parties, circumstances of the case” e.g.: A says to N that he will sell
his house to him for Rs.2Lac. it is an express proposal, A railway coolie etc.
2) Legal relations: “The offer must be made in order to create legal relations
otherwise there is no agreement.” e.g.: 1 )‘A offers to sell his watch to B for
Rs.200 and B agrees. It is an agreement Because the parties intend to create
legal relations.’ 2) ‘A invites B to dinner and B accepts the invitation. It does
not create legal relations. It is social agreement.’
3) Definite & Clear : “ An Offer must be Definite and Clear.” e.g.: ‘A has two
motorcycles. He offer to sell one motorcycle to B for Rs.27000. It is not a valid
offer because it is not clear which motorcycle A wants to sell.’
4) Invitation to Offer : “ Invitation to offer is not an offer. In an invitation to
offer , the person making the invitation does not make an offer but only invites
the other party to make an offer.” e.g.: ‘X displays goods for an auction sale. It
is not an offer .The offer will come from the buyer in the form of bid.’

8. 5) Specific or General : “When an offer is made to a specific person or group of
persons, is called specific offer. When an offer is made to the general public ,it is
General offer.” e.g.: 1) ‘M offers to sell his bicycle to N for Rs.800. It is specific
offer.’ 2) B announces in newspaper a reward of Rs.1000 for anyone who will
return his lost radio.it is general offer.’
6) Communicated to Offeree: “An offer is valid only when it is communicated to
the offeree because acceptance of any offer requires knowledge.” e.g.: ‘A without
knowing that a reward has been offered for the arrest of a particular criminal,
catches the criminal and informs the police. A cannot recover the reward as he was
not aware of it.’
7) Negative Condition: “An offer should not contain a condition the non-compliance
of which may be assumed as acceptance. An offeror cannot say that if acceptance
is not communicated up to a certain date, the offer would be presumed to have
been accepted. If the offeree does not reply, there is no contract, because no
obligation to reply can be imposed on him, on the ground of justice no agreement
because such condition cannot be imposed on the offeree. It is only a one sided
offer.” e.g.: ‘A wrote to B offering to sell his book for Rs.500 adding that if he
didn’t reply with in 5 days, the offeree would be presumed to have been accepted.
There is no agreement b/c such condition can’t be imposed on the offeree. It is
only a one sided offer.’

9. 8) Conditions of offer: “An offeror may attach any terms and conditions
to the offer he makes. He may even prescribe the mode of acceptance.
There is no contract, unless all the terms of the offer are accepted in the
mode prescribed by the offeror. It must be noted that if the offeror asks
for sending the acceptance by telegram and the offeree sends the
acceptance by letter, and the offeror may reject such acceptance.” e.g.:
‘A asks B to send the reply of his offer by telegram but B sends reply
by letter, A may reject such acceptance because it is opposed to the
prescribed mode of communication.’
9) cross offers: “When two parties make similar offers to each other, in
ignorance of each other’s such offers are called cross-offers. The
acceptance of cross-offers does not result in complete agreement.” e.g.:
‘A wrote B to sell him 100 ton of iron at Rs.10,000. On the same day,
B wrote to A to buy 100 tons of iron at Rs.10,000. There is no contract’

10. Revocation or Termination
of Offer

12. 1.Notice of Revocation:
An Offer can be revoke by sending a notice
of revocation to the other party. It means that the offeror may
revoke his offer at any time before acceptance., even though
the period to acceptance of offer has not yet expired. This way
the offeree cannot create a contract by accepting the revoked
offer.
Example:
A, at an auction gives the highest bid to buy B’s goods.
He withdraws the bid before the fall of hammer. The offer is
revoked.

13. 2.Lapse of Time:
When the offer is kept open for a specified time
period, it terminates if it is not accepted within that period. If
the offer does not specify any period, it terminates after lapse
of the reasonable time. The time depends upon the
circumstances of each case.
Example:
M offered to buy shares of a company R, on 8th June .R
allotted shares to M on 23rd November. M refused to accept
them. Held, that the offer had lapsed by delay in accepting.

14. 3. Failure to fulfil Condition:
If an offer contains some conditions and
the offeree fails to fulfil these conditions, the offer terminates.
Example:
A offer to sell this scooter to B, for Rs.50000 if B gets
admissions in medical college. B fails to get admission, the
offer is revoked.

15. 4. Death and Insanity of offeror:
An Offer terminates on death or
insanity of the offeror, if the offeree comes know about the death or
insanity of offeror before his acceptance. If the offeree does not
know about the death or insanity of offeror and gives his
acceptance, it is valid acceptance.
Example:
X requested D, to give credit to Y and guaranteed payment
up to Rs.1 lac. X died and D in ignorance of his fact continued to
give credit to Y. D sued X’s legal representatives on the guarantee.
Held , that the legal representatives were liable.

16. 5. Revocation of offer by offeree:
If the offeree reject the offer and communicates the
rejection to the offeror, the offer terminates even though the
period for acceptance of offer has not yet expired.
Example:
A offer to sell his cycle B and keeps the offer open for
ten days. B refuses after three days. It terminates although the
period has not yet expired.

17. 6.Counter offer by offeree:
When an offer is accepted with some change in the
terms of the offer, such acceptance is called counter offer.
Example A:
A offers to sell his house to B for 1 Lac, B counter offers
Rs80000. Later, even if B is ready to pay Rs1Lac, the original offer
is terminated.
Example B:
W offered to sell a farm to H for Rs1000. H offered Rs950.
W refused the offer. Subsequently H offered Rs1000. Held there
was no contract as H by offering Rs950 had rejected the original
offer.

18. 7.Death and insanity of offeree:
An offer can be accepted only by the offeree. It cannot be
accepted by his legal representatives.
Example:
X offers to sell his camera to Y. Y dies before acceptance. The
offer terminates.
8.Subsequent Illegality:
An offer lapses if it becomes illegal before its acceptance.
An offer may also terminate if it becomes illegal due to change in law
before its acceptance by the offeree.
Example:
A offers to sell 10 begs of rice to B for Rs2000. Before its
acceptance a law bans the sale of rice. The offer is terminates.

19. 9.Destruction of subject Matter:
An offer lapses if the subject matter of the offer is
destroyed before its acceptance by the offeree.
Example:
A offer to sell his horse to B. The horse dies before the
acceptance or offer by B. The offer terminates.
10.Prescribed Manner:
If the offeror prescribes the manner of acceptance, the
offer terminates if the offeree does not accept it according to the
prescribes manner. If the offeror wants to reject the offer, he must
inform the offeree within a reasonable time. If offeror does not inform,
he will be bound by such acceptance.
Example:
A offers to sell his car to B. A requests B give acceptance by
telephone. B sends acceptance by letter. The offer terminates.

20. Acceptance
 The acceptance is the consent given by the offeree to an offer. It is
an expression by the offeree of his desire to be bound by the terms of
offer.
 When the person to whom the proposal is made signifies his assent,
the proposal is accepted.
 The proposal become “promise” when accepted.
Example
A person offer to sell his car and other person accepts his offer. This is
an acceptance

21. Essentials of Valid Acceptance
Acceptance must be given by the person to whom the proposal is made:
An acceptance to be valid must be given only by a person to whom
offer has been given. In other words, acceptance must move from the offeree
and no one else.
Acceptance can be given only when the acceptor has the knowledge of
the offer:
Acceptance therefore cannot be given without the knowledge of offer.
The acceptance must be absolute and unconditional:
It is another important essential element of a valid acceptance. A valid
contract arises only if the acceptance is absolute and unconditional. It means
that the acceptance should be in total (i.e. of all the terms of the offer), and
without any condition.

22. Thus, an acceptance with a variation is no acceptance. It is simply a
counter offer. A counter offer puts an end to the original offer, and it
cannot be revived by subsequent acceptance.
Example
A person offer his house to sell it to other person at 35 lacs but
other person say I give only 30 lacs then, there is no acceptance in this
by buyer.
The acceptance must be given within the time prescribed or within a
reasonable time:
Sometimes, the time limit is fixed within which an acceptance is
to be given. In such cases, the acceptance must be given within the fixed
time limit. In case, no time is prescribed, the acceptance should be given
within a reasonable time. The term ‘reasonable time’ depends upon the
facts and circumstances of each case.

23. The acceptance must be communicated to the offer or himself:
A valid contract arises only if the acceptance is communicated to the
offeror himself. If acceptance is communicated to the person, other than
the offeror, it will not create any legal relationship. In fact, such
communication is no communication at all.
The acceptance must be in the prescribed manner:
It is the legal rule of the acceptance that it must be accepted in the
prescribed manner. If the offer is not accepted in the prescribed manner,
then the offeror may reject the acceptance within reasonable time.
Example
Ali made an offer to Ahmed and asks him to accept the offer by
telegram. Ahmed sends his acceptance by post. It is not valid acceptance.

24. The acceptance cannot be presumed from silence:
Sometimes, the acceptor does not convey his decision to the offer or/and
keeps silent. In such a case, his silence does not amount to acceptance. Similarly,
the offeror does not have the legal rights to say that if no answer is received within
a certain time, the offer shall be deemed to have been accepted.
He (the offeror) cannot impose a condition that offeree’s silence will be
regarded as equivalent to acceptance.
Example
If Ahmed sell his house to Ali and Ali not reply to his offer than Ahmed can
sell his house to any body. Ali has no legal remedy against Ahmed.

25. The acceptance must show an intention that acceptor is willing to
fulfil the terms of the offer:
A valid contract can arise only when the acceptance is given with
the intention of fulfilling the terms of the contract. An acceptance which
is made jokingly and without any intention of entering into a contract is
invalid and does not create any legal relationship.
The acceptance may be express or implied:
An acceptance, which is expressed by words written or spoken, is
called an express acceptance. when acceptance is made by conduct or
action, it is called implied acceptance.
Example
Ahsan offered by letter to sell his car to Asif and he accepted it by
sending letter. It is an express acceptance.