Contract

Mercantile law is an important branch of civil law which deals with laws relating to business
transactions. The main sources of mercantile law in India are the English laws, Indian statute
laws, judicial decisions, local customs and usages. The law of contract is the most important
part of mercantile which deals with general rules relating to all types of contracts and covers
the special provisions relating to some specific contracts. The law of contract is contained in the
Indian Contract Act, 1872are as follows:
The word contract has been defined differently by various jurist. Some of the important
definitions Are as follows:
1. Salmond- A contract is an agreement, creating and defining the obligation between
parties.
2. Sir Fredrick Pollock- Every agreement and promise enforceable at law is a contract.
The definition as given in the Contract Act is based on Pollock's definition, is defined in 2(h)
of the Indian Contract Act, 1872 as follows:
"An agreement enforceable by law is a contract."
Thus a contract essentially consists of two elements: (i) an agreement; and (ii) its
enforceability by law.

(i) Agreement
"An Agreement" is defined in Section 2(e) of the Contract Act as "Every promise and every set
of promises forming the consideration for each other." In this context a promise refer to a
proposal/ offer which has been accepted, in other words, an agreement consists of an offer by
one party and its acceptance by the other.
Thus, Agreement = Offer + Acceptance ( promise) + consideration ie., for an agreement there
must be at least two parties, one making an offer and the other accepting it. A person cannot
enter into agreement with himself. Another aspect relating to an agreement is that the parties
to an agreement must have an identity of minds in respect of the subject matter. The proposer
and acceptor must agree on the same thing in the same sense. This is also called consensus-ad-
idem.
Illustration - A has three motor bikes, 1998, 1999, 2000 make. A offers to sell his motor bike of
1991 make while B is under impression that he is buying 1998 bike. Here, there is no identity of
minds. The subject matter are different hence there is no agreement.
Case law – Bhagwandas Goverdhan Das Kedia vs. Ms. Girdharilal Purshottam- the Apex court
stated, “ a contract unlike a tort is not unilateral. If there be “ no meeting of mind” no
contract can result” . There should therefore be an offer by one party express or implied and
acceptance of that offer by the other in the sense in which it was made by the other.
 (ii) Enforceable by Law
An agreement is regarded as contract when it is enforceable by law. In order that an agreement
may be regarded as a contract, it must give rise to a legal obligation i.e. must be enforceable
by law. The condition of enforceability are stated in section 10 of Indian Contract Act, 1872.
According to this section "an agreement is a contract when it is made for consideration,
between parties who are competent, with their free consent and for a lawful object and are
not hereby expressly declared to be void. Any obligation, which is not enforceable by law is
not regarded as a contract.”
Social, moral or religious agreements do not create any legal obligation. For a valid contract
parties should have an intention to create legal relationship, this intention can be inferred from
the facts of the case. For example, an agreement to take dinner together or to go for a picnic is
not a contract because it does not create a duty enforceable by law. Such agreements are
purely of a social r where there is no intention to create legal relationship. Thus all agreements
are not contract only agreements enforceable by law are contract.
Void agreements are specifically mentioned under section 24 to 30 Indian Contract Act, 1872
which include illegal agreement as well. Illegal agreements are those agreements which are
against the public policy this may not be true in reference to all void agreements. Except the
contract in strict sense, you will come across the concept of voidable contract in Indian Contract
Act. To state in brief those agreement which are enforceable by law at the option of one or
more of the parties there to but not at the option of the other or others is a voidable contract.
There is a noteworthy difference between a void agreement and voidable contract. Void
agreement are void ab initio i.e. void from very inception/beginning, none of the parties can
acquire legal rights through void agreement. However voidable contract gives rise to every
possible consequences of a valid contract unless such contract avoided by the party competent
to.
Essential Elements of a Valid Contract are as under:
i. Offer and Acceptance-
An agreement is a first stage of contract and an agreement comes into existence
when one party makes a lawful offer and the other accepts it. The term lawful
means that the Act has laid down certain rules for making the offer and its
acceptance, which must be adhered to while entering into an agreement. For
instance, in order to be lawful, an offer must be definite, meaningful, and duly
communicated to the other party, failing which the agreement shall not be binding.
In the same way, acceptance must be absolute and unconditional, duly
communicated, and must be in the mode prescribed by the offeror, if any.
ii. Intention to Create Legal Relations
 There must be an intention among the parties that the agreement should be
attracted by legal consequences and thus create legal obligations. Purely domestic
or social arrangements do not contemplate to give rise to legal consequences. For
instance, an agreement to dine at friend’s house is not a contract as this agreement
lacks the intention to create legal obligations. In the same way an agreement
between husband and wife also lack the intention to create legal obligations and
thus is not a contract.
 Case law- In Balfour v. Balfour- the Plaintiff and the Defendant were a married couple.
In 1915, while the Defendant was on leave, the couple returned to England. When it was
time to return to Ceylon, the Plaintiff was advised not to return because of her health
issues. Prior to the Defendant returning, he promised to send the Plaintiff £30 per
month as support. The parties relationship deteriorated and the parties began living
apart. The Plaintiff brings suit to enforce the defendant’s promise to pay her £30 per
month. It was held that she could not recover as the agreement did not create any legal
relationship.
Warrington L. J. observed: There is no contract here. These people never intended to
make a bargain which could be enforced in law. The husband expressed his intention to
make this payment and he promised to make it, and was bound in honour to continue it
so long as he was in a position to do so. The wife on the hand, made no bargain at all”.
Offers made in jest or excitement cannot be construed as offers as they lack contractual
intention are made without any thought or intention of creating a binding obligation.
iii. Free Consent
Free consent of all the parties is a cardinal essential of a valid contract. The term
‘consent’ implies that the parties of the contract must have agreed upon same thing,
in the same sense, and voluntarily agree to the same thing. When Consent is
induced by (i) coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v)
mistake, then the consent cannot be considered as free. In the first four cases, the
contract becomes voidable at the option of the aggrieved party. But where an
agreement is induced by mistake of both parties, which is material to the
agreement, it would be void.
iv. Lawful Object
As per section 23, the object of an agreement must not be forbidden by law,
fraudulent, immoral, opposed to public policy, or must not involve or imply injury to
the person or to the property of another person. If the object is unlawful for any of
the above reasons, the agreement shall be void.
Illustration – A promises B to drop a prosecution which he has instituted against B
for robbery, and B promises to restore the value of the things taken. The agreement
is void, as its object is unlawful.( defeating the purpose of law)
v. Certainty
The terms of a contract must be certain in nature. Section 29 provides that
Agreements, the meaning of which is not certain, or capable of being made certain,
 are void. Thus, in order to give rise to a valid contract, the terms of agreement must
be clear and not be ambiguous.
Illustration – A who is a dealer in coconut-oil only, agrees to sell to B “one hundred
tons of oil”. The nature of A’s trade affords an indication of the meaning of the
words, and A has entered into a contract for the sale of one hundred tons of
coconut-oil.
vi. Lawful Consideration
An agreement to be enforceable as a contract must be supported by consideration.
However, the consideration need not always be in terms of money. It may be an act
(doing something) or forbearance (not doing something) or a promise to do or not to
do something. However, an act, forbearance, or promise will amount to
consideration only if the law recognizes that it has some economic value. It must
have such value even though the value cannot be precisely quantified, and may be
past, present or future. But in order to be valid, a consideration must be lawful.
Illustration – A promises to pay B 1,000 rupees at the end of six months, if C, who
owes that sum to B, fails to pay it. B promises to grant time to C accordingly. Here,
the promise of each party is the consideration for the promise of the other party,
and they are lawful considerations
Section 2(d) provides that when, at the desire of the promisor, the promise or any
other person has done or abstained from doing, or does or abstains from doing, or
promises to do or to abstain from doing, something, such act or abstinence or
promise is called a consideration for the promise.
As per section 23, the consideration is lawful unless it is forbidden by law or is of
such a nature that, if permitted, it would defeat the provisions of any law, or is
fraudulent or is regarded as immoral by the court, or involves or implies injury to the
person or to the property of another person, or courts regards as immoral, or
opposed to public policy. It means that an illegal consideration renders the whole
contract invalid.
vii. Capacity of Parties
The parties must be legally competent to enter into a contract. It means that parties
must have attained the age of majority and should also be of sound mind. Section 11
provides every person is competent to contract who is of the age of majority
according to the law to which he is subject, and who is sound mind and is not
disqualified from contracting by any law to which he is subject. It means that a
minor, a mentally unsound, or mentally challenged person; and a person otherwise
disqualified from contracting by any law, for example, an alien enemy, insolvent, and
convicts are not competent to contract.
If any of the parties to an agreement suffers from minority lunacy or idiocy etc., then
the agreement is not enforceable by law.

Kinds of contract
 1. Valid Contract – A contract that fulfils all the legal requirements, such as the existence
of agreement, intention for creating legal relations, certainty, etc., is said to be a valid
contract. The absence of any one essential element will render the contract void,
voidable, illegal, or unenforceable.
2. Void contract- A void contract has no consequences and thus are not binding on any
party. According to section 20) provides that ‘a contract which ceases to be enforceable
by law becomes void, when it ceases to be enforceable.’
Void contracts are valid, when they are entered into, as they conform to all the
conditions of enforceability, laid down under section 10 of the Act and are binding on
the parties, but later on becomes void because of impossibility to perform.
3. Voidable contract – Section 2(1) provides that an agreement which is enforceable by
law at the option of one or more of the parties thereto, but not at the option of the
other or others, is a voidable contract. It means that a voidable Contract is the contract
which can be enforceable only at the option of one of the two parties to the contract. In
this type of contract, one party is legally authorized to make a decision to per- form or
not to perform his part. The contract remain valid until the aggrieved party does not
cancel it. Moreover, the party aggrieved party has the right to claim damages from the
other party.
4. Void Agreements - According to section 2(g), “An agreement not enforceable by law is
said to be void” Thus a void agreement does not give rise to any legal conse- quences
and is void ab initio. In the eye of law such an agreement is no agreement at all from its
very inception. Thus the parties to the contract do not get any legal redress in the case
of void agreements.
5. Illegal Agreement – The term illegal means contrary to law. An illegal agreement is
strictly prohibited by law and the parties to the agreement can be penalized for entering
into such an agreement. According to section 23 an agreement is illegal if its object or
consideration is:
i. Forbidden by law, or
ii. Is of such a nature that, if permitted, it would defeat the provisions of any
law;
iii. Is fraudulent; or
iv. Involve or implies injury to the person or property of another; or
v. The court regards it as immoral or opposed to public policy.

Void Agreement Voidable Contract Illegal Agreement

Void agreement refers to an A voidable contract is an An agreement whose cre-
agreement which as per law, agreement which is ation is forbidden by the
is unenforceable and has no enforceable by law at the court of law is an illegal
legal consequences option of one or more of the agreement
parties thereto, but not at
the option of the others.
It is void from the very It is void from the very An illegal Agreement is also
beginning beginning void and initio i.e. void from
the very beginning

It is caused due to absence of

coercion, undue influence, Caused as the agreement is
one of more essentials fraud and misrepresentation forbidden by law
required to form valid are the main factors
contract responsible for rendering a
contract voidable.
Parties to void Agreement Damages can be claimed by Parties to illegal Agreement
not entitled to any penalty the aggrieved party are penalized.
All collateral agreement may All collateral agreement may All collateral agreements are
not necessarily be void not necessarily be void. void
Not prohibited by IPC Not prohibited by IPC Prohibited by IPC
 Offer / Proposal
Section 2(a) provides that 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.
Points to remember -
1. Two or persons are required, the one who is making offer i.e. offer or and to whom
the offer is made ie. Offeree..
2. Communication of offer.
3. With the object to take assent of the other on the same thing.
4. Offer should be certain nature

Kinds of offer
1. Express Offer: when the offer is made by words, written or spoken Express offer may
be made by sending email, telegram, through letter or by proper sale deed. Section 9
states that “ In so far as the proposal or acceptance of any promise is made in words ,
the promise is said to be express”
Illustration: A made an offer to sell his house to B for 200,00,000 by writing a mail.
2. Implied Offer: It must be made by some positive act or sign or implied from the Act or
conduct of the parties. For example when a coolie picks up your luggage to carry it from
railway platform to the taxi stand, it means that the coolie is offering his service for
some payment. This is implied offer by coolie. Sec 9 states that “ In so far as such
proposal or acceptance is made otherwise in words , the promise is said to be implied.
3. Specific Offer: This type of offer is made to a specific person or class of person. This
type of offer must be accepted by the offeree and same must also be communicated to
the offeror.
Illustration - A offers to sell his car to B for 2,50,000. As this offer is made to B only B can
accept this offer.
4. General Offer: General offer is made to public at large. This type of offer can be
accepted by anyone. But the contract is not made with the public at large. Contract is
made only with that person who comes forward and perform the conditions of the
proposal. According to Anson” “An offer need not to be made to an ascertained person,
but no contract can arise until it has been accepted by an ascertained person”.
Case law- 2. Carlill v. Carbolic Smoke Ball Co., (1893) 1 QB 256: 67 LT 837: 41 WR 210
 The Carbolic Smoke Company offered by advertisement to pay £ 100 reward to any one
who contracts the increasing epidemic of influenza cold, or any disease caused by taking
cold, after having used the ball three times daily for two weeks, according to the printed
directions. It was added that £ 1000 was deposited with the Alliance Bank showing our
sincerity in the matter. The plaintiff used the smoke ball according t the directions
printed on it, but afterwards suffered from influenza and sued the company for the
promised reward. The defendants argued that as it an offer made to the public, there
was no contract between the plaintiff and themselves and hence they were not liable.
The main issues involved were, is notification of acceptance to the offeror essential to
constitute a binding offer? And what was the consideration for this contract? The Court
held that a person who makes an offer in a advertisement impliedly indicates that does
not require notification of the acceptance of the offer. In such cases performance of the
condition a sufficient acceptance without express notification of it. Further, the very fact
that the plaintiff took the trouble of using the smoke balls was enough consideration to
support the contract. The plaintiff was entitled
5. Counter offer- Refers to an offer to contract on terms materially different from the
terms of the offer. It is, thus, an alternative proposal made by the offeree in substitution
for the original offer. When the purported acceptance of an offer contains a counter-
offer, it is no acceptance at all and is corresponding to rejection of the original offer.
Such a counter-offer may, however, be accepted by the original offeror and can thus
give rise to legal obligations. It is important to note that a simple request as to whether
or not other terms would be acceptable does not amount to a counter-offer, since such
a request does not, by itself, reject an offer.
6. Standing offer or Continuing Offer - An offer that is kept open for acceptance over a
period of time is termed as ‘standing’, ‘open’, or ‘continuing’ offer. Thus, a tender to
supply goods at specified prices as and when required are of the nature of standing
offer. The tenderer must supply whenever an order is placed, but he cannot insist on
any order being made at all. The quantity to be supplied may or may not be specified.
7. Cross Offer- Sometimes two parties make similar offers to each other without knowing
the offer made by the other. These are called cross offers In such a case, no binding
contract will be created as no one has accepted the offer made by the other.
Illustration - A by a letter makes an offer to B to sell his house for 2,00,0000. At the
same time B of M makes a similar offer to A to buy his (A’s) house for 2,00,0000. Offers
of both A and B cross each other in the post. These offers are called cross offers. Such
offers do not constitute acceptance of one’s offer by another. Hence, there is no
contract.
Two offers are said to be cross offer, if
i. They are made by the same parties to one another
ii. Each offer made in ignorance of the offer made by the party,
iii. The terms and conditions contained in both the offer are same.
 If all the abovementioned essentials will be present, there will be no concluded
contract.

Essentials of valid offer

1. An offer must be one to give rise to legal consequences-To constitute an offer, offerer
must intend to create a legal obligation. Where such intention is lacking the agreement
is not a contract. Further, where an agreement clearly provides that it shall not be
subject to legal jurisdiction, the no contract between the parties.
Social invitations are examples of offers made without the intention of creating legal
obligations
Illustration
If A invites B to dinner and then forgets about it. B cannot claim compensation for
expense and inconvenience as there was no intention to create a legal obligation.
Case law- In Balfour v. Balfour- the Plaintiff and the Defendant were a married couple.
In 1915, while the Defendant was on leave, the couple returned to England. When it was
time to return to Ceylon, the Plaintiff was advised not to return because of her health
issues. Prior to the Defendant returning, he promised to send the Plaintiff £30 per
month as support. The parties relationship deteriorated and the parties began living
apart. The Plaintiff brings suit to enforce the defendant’s promise to pay her £30 per
month. It was held that she could not recover as the agreement did not create any legal
relationship.
Warrington L. J. observed: There is no contract here. These people never intended to
make a bargain which could be enforced in law. The husband expressed his intention to
make this payment and he promised to make it, and was bound in honour to continue it
so long as he was in a position to do so. The wife on the hand, made no bargain at all”.
Offers made in jest or excitement cannot be construed as offers as they lack contractual
intention are made without any thought or intention of creating a binding obligation.
2. The terms of the offer must be definite – An offer must be certain, it must not be
vague or loose. If the offer is uncertain, an essential element is lacking and cannot be
accepted.
Case law- Taylor v. Portington, A promised B to take a lease of a house for three years
at £ 85 per year if the house were put into thorough repair and the drawing rooms
decorated according to present style. It was held that the terms were too uncertain and
that the promise could not be enforced.
Illustration - if A, who is the owner of five ships enters into an agreement with B to sell
one of his ship to him for Rs.5,00,000. This type of offer cannot result into a contract
because the terms of agreement are not certain.

3. Offer must be communicated

 An offer becomes effective only when it has been signified or communicated to the
person to whom it was made (ie., offeree) so as to give him an opportunity to accept or
reject it. Communication of offer is dealt under section 3 of the Act. Section 3 provides
that the communication of proposals are deemed to be made by any act or omission of
the party proposing, by which he intends to communicate such proposal or which has
the effect of communicating it.
Case law- In Lalman Shukla v. Gauri Datt,” the nephew of the defendant absconded
from home and no trace of him was found. The defendant sent his servants to different
places in search of the boy and among them was the plaintiff who was the munim of his
firm. He was sent to Haridwar and money was given to him for his railway fare and
other expenses. After this the defendant issued handbills offering a re- ward of 501 to
anyone who might find out the boy. The plaintiff traced the boy to Rishikesh and
brought him back. He gave to the plaintiff a reward of two sovereigns and afterwards on
his return to Cawnpore gave Rs. 20 more. The plaintiff did not ask for any further
payment and continued in the defendant’s service for about six months when he was
dismissed. He then brought this suit, out of which this application arises, claiming ? 499
out of the amount of the reward offered by the defendant under the handbills issued by
him. The record shows that the handbills were issued subsequently to the plaintiff’s
departure for Haridwar. It appears, however, that some of the handbills were sent to
him there. In this case it was held that Lalman Shukla has no right in the reward because
he had no knowledge of the proposal. Hence, an action without the knowledge of the
proposal is no acceptance

4. An offer must distinguish from an invitation to offer

Offer Invitation to offer

An offer is the final It is not an offer but inviting
expression of It is willingness public to make an offer. That
by the offeror. can be accepted or rejected
by the offeree.

An offer when accepted will It is an invitation of offer

result An into a valid and when accepted will result
binding contract. into offer.

Illustration: A offered to sell Illustration -Mr. A asked the

his bred car to B for 500000. minimum price on which B
B accepted the offer. will sell his red car.
A valid contract will come To A. Mr. B quoted Rs. 70000
into existence and if A or B on which Mr. A agreed to
will breach the contract, an buy the car . But at this stage
action can be taken against B refused to sell his car to
such party. Mr. A. In the case filed by Mr.
A against B, the court held
that no valid contract has
come into existence as the
response to the question
asked by Mr. A could not be
considered as Offer but
Invitation to an offer.

Acceptance Sections 2(b), 7,8,9

Offer creates no legal rights until acceptance. Acceptance is an expression made by the offeree
of his willingness to be bound by the terms of the offer. According to section 2(b): “The
proposal is said to be accepted when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. Thus acceptance is the assent given to a
proposal.
A proposal when accepted becomes a promise.” A proposal becomes a promise only when it is
accepted by the other party to whom the proposal is made.
Illustration- A proposal when accepted becomes a promise. For example, A offers to sell his
book to B for Rs. 20. B agrees to buy the book for Rs. 20. This is an acceptance of A’s offer by B.
Who can Accept the offer?
An offer can be accepted only by the person or persons to whom it is made or their authorised
agent. An offer made to a particular person (specific offer) can be accepted only by him and
none else. An offer made to general or in public can be accepted by any person provided he has
the knowledge of the offer and he acts as per the terms and conditions of the offer.
How is an Acceptance made?
Similar to offer, acceptance may also be either express or implied. When the acceptance is
given by words spoken or written, it is called an “express acceptance.” The acceptance may also
be implied by conduct.
Illustration- A offers a reward of Rs. 500 to anyone who traces his lost horse. B, who is aware of
this offer, finds the horse, he is entitled to the reward as he accepts the offer by doing the
required act. Another example is S enters into Bombay transport Corporation for going to
Bandra. This is an implied acceptance by S and he is bound to pay the fare.

For valid acceptance certain conditions must be fulfilled. These are:

1. Acceptance must be absolute and unqualified. Section 7(1) of the Indian Contract Act
provides that ‘In order to convert a proposal into a promise, the acceptance must be
absolute and unqualified.” A qualified and conditional acceptance amounts to a counter
offer which amounts to non acceptance. Moreover, an offer must be accepted in full. If
only a part of the offer is accepted, the acceptance will not be valid.
Illustration - X offers to sell 400 quintals of sugar to Y at a certain price. Y accepts to buy
280 quintals only. It is not a valid acceptance since it is not the whole of the offer.
Case law- Macpherson Vs. Apanna, AIR 1951 SC 184, the plaintiff offered Rs. 6,000 for
the purchase of defendant’s house and adding that he could pay more if found
reasonable, to which defendant replied, “Won’t accept less than Rs. 10,000” that was
accepted by the plaintiff as counter offer. Court held that no contract is concluded
between the party as second reply was a tender for the offer and not acceptance.
2. Acceptance must be in prescribed manner. Acceptance has to be made in the manner
prescribed or indicated by the offerer. If the offer is not accepted in the prescribed
manner it is upto the offerer to accept or reject such acceptance. But when the
acceptance is not in the prescribed manner and the offerer wants to reject it, he must
inform the acceptor within a reasonable time that he is not bound by acceptance since it
is not in the prescribed manner. If he does not do so within a reasonable time, he will be
bound by the acceptance. Where no manner is prescribed. When no mode of
acceptance is prescribed, acceptance must “be expressed in some usual and reasonable
manner.” Mail of course, a very reason- able manner in such cases.
3. Acceptance must be communicated. The acceptance is valid only when it has been
communicated to the offerer. A mere silence or mere mental acceptance not evidenced
by words or conduct, is no acceptance. Communication of acceptance is complete when
if the letter of acceptance is lost in transit or delayed, the offerer is bound by the
acceptance because the acceptor has done all that is required on his part to accept.
Reason behind this is offeror becomes bound by the acceptance, the moment it is put
into course of transmission against him by the offeree. However, the offerer, while
making an offer, cannot impose a burden on the other party to communicate his refusal
or rejection. He can only prescribe the manner in which the offer is to be accepted.
Case law - Felthouse Vs. Bindley (1863), 7 L.T. 835, F offered by a letter to buy his
nephew’s horse for £30 saying if I hear no more about him, I shall consider the horse is
mine. The nephew sent no reply at all but told Bindley, his auctioneer, not to sell that
particular horse as he intends to sell it to his uncle. Bindley, however, sold the horse by
 mistake. F sued auctioneer for conversion. It was held that F would not succeed as his
nephew had not communicated acceptance and hence there was no contract.
Case law- Delhi Development Authority Vs. Ravinder Mohan Aggarwal, 1999(3), SCC
172, it has been held that mere noting on the file of acceptance of the bid is not enough,
it should be duly communicated. The knowledge of the bidder of such noting is
inconsequental and can not give rise to contract.
4. Only authorised person should communicate about the acceptance. In order to make
an acceptance valid, it should be communicated by the offeree himself or by a person
who has the authority to accept.
Case law- Powell Vs. Lee (1908), 99 L.T. 284. P applied for the post of a headmaster in a
school. The Managing Committee passed a resolution appointing P to the post but this
decision was not communicated to P. However, a member of the
5. Acceptance must be given within a Reasonable Time- In case where offerer specify
certain period to give acceptance, then acceptance is to be given before expiry of such
specified period. But at times, offerer does not specify any period to give acceptance. In
such a case acceptance should be given within reasonable period. The Concept of
reasonable period depends upon nature of situation.
Case law - In Ramsgate Victoria Hotel Company v. Montiforie an investor applies for
shares, in a company. It is well known that share application constitutes offer. Therefore
allotment becomes acceptance. Here the company makes allotment after five months
from the date of share application. Court decides that acceptance is not made within
reasonable period and hence the allotment is not valid.

6. Acceptance should be given before the offer lapses or is withdrawn- The acceptance
must be given while the offer is in force. Once an offer has been withdrawn or stands
lapse it cannot be accepted.
Case law – In Union of India v. M.K. Sarkar, the respondent though aware of the
introduction of the pension scheme and the options given on eight occasions between
the years 1957 to 1974, consciously did not opt for the pension scheme and continued
with the Contributory Provident Fund Scheme. Ultimately the respondent while serving
as Controller of Stores, took voluntary retirement with effect from 15.10.1976. As on
the date of his retirement, the eighth option to shift to pension scheme, was still open
for exercise. But the respondent did not opt for the pension scheme, but received the
Contributory Provident Fund dues, on his retirement.
7. Acceptance by Conduct
The doctrine of notification of acceptance is required for the benefit of the person who
makes the offer. The person who makes the offer may dispense with notice to himself if
he thinks it desirable to do so. Where an offeror expressly or impliedly intimates a
particular mode of acceptance as sufficient to make the bargain binding, it is only
necessary for the other person to whom such offer is made to follow the indicated
 mode of acceptance. If the person making the offer expressly or impliedly intimates in
his offer that it will be sufficient to act on the proposal without communicating
acceptance of it to himself, performance of the condition is a sufficient acceptance,
without notification. Section 8 provides that the performance of the conditions of a
proposal, or the acceptance of any consideration for a reciprocal promise which may be
offered with a proposal, is an acceptance of the proposal.
Case law- In Carlill v. Carbolic, it was held in this case that in cases of general offer and
in the advertisement cases an inference to be drawn from the transaction itself that a
person is not to notify his acceptance of the offer before he performs the condition and
if he performs the condition notification is dispensed with. The performance of the
condition is sufficient acceptance without the notification of it.

Communication of Offer and Acceptance

The matter of communication of offer and acceptance arises only when the parties are at a
distance from each other. It is the communication of offer and acceptance that binds the party.
Communication of offer. S.4 of the Indian Contract Act, 1872 - defines the communication of
offer which states that, “the communication of an offer is complete when it comes to the
knowledge of the person to whom it is made” ie., when the letter containing the offer reaches
the office.
Illustration - S of Calcutta sends a letter by post to W offering to sell his godown for Rs. 15 lacs.
The letter is posted on September 15 and this letter reaches W on September 23. The
communication of the offer is complete on September 23.
Communication of Acceptance- The communication of an acceptance is complete:
(a) As against the proposer, when it is put in a course of transmission to him, so as to be out of
the power of the acceptor and
(b) As against the acceptor, when it comes to the knowledge of the proposer.

Thus the offerer bound by the acceptance as soon as the letter of acceptance is duly posted by
the acceptor, but the acceptor is bound by his acceptance only when the letter of acceptance
reaches the offerer. A valid contact arises even if the letter of acceptance is lost in transit or is
delayed. Thus the time period in between posting of letter and reaching of the letter in the
knowledge of proposer can be used by the acceptor to revoke acceptance as well.
Illustration :
If X makes an offer to Y to sell his gold pen for Rs. 10,000/- and Y accepts the same and sends
the letter of acceptance through post on 2nd January, which reach in the knowledge of X on 8th
of January
Here X becomes bound by the acceptance on 2nd January itself and cannot revoke his offer.
However Y becomes bound by his acceptance only on 8th January and he could use the time in
between 2 to 8 January to revoke his acceptance.
Communication when parties are at same place
When parties are in the presence of each other, the method of communication will, depend
upon the nature of the offer and the circumstances in which it is made. When an offer is orally
made, acceptance may be expected to be made by an oral reply, but even a nod or other act
which indubitably intimates acceptance may suffice. If the offeror receives no such intimation.
Even if the offeree has resolved to accept the offer, a contract may not result.
Communication in cases of telecommunication
Where the parties are in each other’s presence or, though separated in space, they are in direct
communication, as for example, by telephone, no contract will arise until the offerer receives
the notification of acceptance.
The rule which has been accepted for letters and telegrams should not be extended to
communication by telephone. The application of the general rule is that an acceptance must be
communicated. Telephone is much more like conversation face to face than an exchange of
letters so there is no complete communication until the reply actually comes to the knowledge
of the offer or.
Illustration - A made an offer to B over telephone while B was conveying his acceptance. The
line suddenly went dead and A could not hear anything on the other side. There no contract
was concluded. Then, B makes another attempt and this time he could convey his acceptance.
The contract is said to be concluded on the second attempt.
Communication in the case of telegram
When by agreement, course of conduct, or usage of trade, acceptance by post or telegram is
authorised, the bargain is struck and the contract is complete-when the acceptance is put into a
course of transmission by the offeree by posting a letter or dispatching a telegram.
Revocation of offer and acceptance
Revocation means “cancellation”
Revocation of offer is stated in Section 5 of the Contract Act, 1872 “a proposal may be revoked
at any time before the communication of its acceptance is complete as against the proposer,
but not afterwards." Since the communication of acceptance is complete as against the offerer
when it is put in a course of transmission so as to complete as against the offerer when it is put
in a course of transmission so as to be out of his power.
Illustration: A proposes, by a letter sent by a post, to sell his house to B and B accepts the
proposal. In this case, A may revoke his proposal at any time before or at the moment when B
posts his letter of acceptance, but not afterwards. And B may revoke his acceptance to any time
before or at the moment when B posts his letter of acceptance, but not afterwards.
Hence, an offer can be revoked at any time before the letter of acceptance has been posted.
Revocation must always be expressed and move from the offerer himself or a duly authorised
agent. Notice of revocation of a "general offer must be given through the same channel by
which the original offer was made.

Revocation of Acceptance S. 5 of the Contract Act, 1872 further provides that "an acceptance
may be revoked at any time before the communication of the acceptance is complete as
against the acceptor, but not afterwards."
Since the communication of acceptance is complete as against the acceptor when it comes to
the knowledge of the offerer. Hence, the acceptor can revoke his acceptance at any time before
his letter accepting the offer reaches the offerer. Once the letter of acceptance reaches the
offerer, the acceptance cannot be revoked. In case the letter of acceptance and the telegram
containing revocation of acceptance may be delivered to the offerer at the same time. In such a
situation, the formation of a contract will depend upon which one is opened first by the offerer.
Communication of Revocation
According to S. 4, the communication of revocation is complete.
1. As against the person who makes it, when it is put in a course of transmission to the
person to whom it is made, so as to be out of the power of the person who make it
2. As against the person to whom it is made, when it comes to his knowledge.
Illustrations: A proposes, by a letter sent by post, sell his house to B, B accepts the
proposal by a letter sent by post, A may revoke his proposal at any time before or at the
moment when B posts his letter of acceptance, but not afterwards, B may revoke his
acceptance at any time before or at the moment. When the letter communicating it
reaches to A but not afterwards.
Case law - In J.K. Enterprises Vs. State of M.P., 1997 (3) Civil LJ 649 (MPHC), in this case A made
offer to purchase tendu leaves made on 11/01/93 to B. On 03/03/93 A withdrew the offer,
however on 12/02/ 03 B accepted the offer and sent registered post to A at the address given
by him. A did not perform his part of the conract. Court held that revocation of offer was not
valid and held A liable for breach.
Revocation of time-bound proposals
Where an offer gives the offeree an option to accept within a specified period, it may be
withdrawn even before the expiry of that period unless there is some consideration for keeping
it open. Where the agreement to keep the offer open for a certain period of time is for some
consideration, the offerer cannot cancel it before the expiry of that period.
Illustration - A the owner of a house agreed, in consideration of the sum of one thousand, to
give the B an option to purchase the house for three lacs within a stated period. A cannot
revoke the proposal within that time, B can validly accept the offer within the stated period.
Case law - Kilburn Engineering Ltd. Vs. Oil and Natural Corporation Ltd., AIR 2000 Bom., 405
at P. 407, court held that it is well settled that the offer and acceptance must be based or
founded on three components; certainity, commitment, communication. If anyone of three
component is lacking either in the offer or in the acceptance, there cannot be a valid contract.
In the present case terms of the contract were not certain, court finally held the offer and
acceptance must be devoid of any doubt either in the mind of the offeror or acceptor as the
case may be place.
Section 6 : Revocation how made i.e. this section of the Indian Contract Act, 1872 provides
various modes of revocation which are as follows:

1. Notice of revocation
In this case, revocation has to be made before the acceptance. The communication of
revocation to be effective must reach the offeree before he mails his acceptance and
makes it out of his power. A revocation is effective only when it is brought to the mind
of the person to whom the offer is made.
Case law- In Ramlalsao Gupta v. M.E.R. Malak, unfortunately the letter of revocation
was reached at wrong address and earlier it was being sent by fax. The court held that
the same to be of no effect.
Case law- In the case of Henthorn v. Fraser, the defendant handed to the plaintiff a
detailed note for the sale of the property at 750 euros with the condition that within
fourteen days the acceptance should be conveyed to the defendant. Meanwhile that
particular offer was considered by another buyer and due to this, next day defendant
informed the plaintiff about the withdrawal of the offer and this note reached the
plaintiff after 5 pm but by that time plaintiff already responed. The acceptance for the
same did not reach to the defendant until the next morning. The court held that the
offer was valid and an order for specific performance made for 750 euros to purchase
the property. The postal rule in Adam v. Lindsell would apply, which stated that it would
 be reasonable for acceptance of an offer to take place by post. However, this rule
would not apply to the revocation of an offer. Post was a way of communicating offer
acceptance, but the acceptance itself is completed as soon as it is posted. This was
reasonable to expect since both parties lived in different towns.
2. By failure to accept condition precedent
Where some preconditions are there for offer before the acceptance is made, it lapses if
acceptance is made without fulfillment of the particular condition precedent.
Case law - In the case of State of West Bengal v. Mahendra Chandra Das, a salt lake
was offered by way of lease with the condition that on deposit of a sum of money withn
a specified period but the defendant even after the expiration of the stipulated time
didn’t deposit the sum of money. The court held that this entailed cancellation of the
allotment.
3. By death or insanity of offerer
4. An offer lapse on the death or insanity of the offeror, provided that the fact comes to
the knowledge of the offeree before he makes his acceptance
Case law - In the case of Dickinson v. Dodds, it was held that after the death of the offeror
an offer cannot be accepted. Earlier in the case of Bradbury v. Morgan, without the
knowledge of the surity’s death, the creditor continued to act on a guarantee. The court
held that with the death of the offeror, an offer is not terminated necessarily and the same
will open until the offeree comes to know the death of the offeror.
Thus, The Indian Contract Act, 1872 not only provide provisions to enter into the contract
but it also provide provisions for the termination of a contract which is entered into by the
parties. The provisions and rules of revocation are laid down under section 5 and modes of
revocation in section 6 of this respective Act. Overall revocation means “taking back” or it is
called as a way of termination of an offer.