BUSINESS LAW NOTES

INDIAN CONTRACT ACT 1872

ACCEPTANCE

A. RULES

1. Acceptance must be communicated to the person who has made an offer.

Mental acceptance, failure to answer or silence on part of the offeree is not acceptance, as
it is not communicated. However for a general offer, no acceptance is necessary, if it is
made by complying with the terms of the offer.(Carbolic Smoke Ball Case)

Eg- A offers to B to sell his house in a prime locality for Rs. 25 lakhs. B had made up his
mind to purchase it, but does not say anything to A. There is no acceptance as it is not
communicated.

Case: Felthouse v/s Bindley

Facts- Felthouse wrote a letter to his nephew, “I want to buy your horse. If I hear no
more from you, I shall assume the horse to be mine.” Nephew informed Bindley, an
auctioneer, to keep the horse out of sale. Bindley by mistake sold the horse to somebody.
When Felthouse came to know this, he brought an action against Bindley.

Held- An uncommunicated acceptance is not an acceptance at all. Further acceptance

cannot be waived by the proposer.

2. Acceptance must be communicated by the person to whom an offer has

been made.
Acceptance shall be made only by the person to whom the offer was made. However, in
case of general offer, acceptance can be inferred from any member of the public, by their
adherence to the terms of the offer.

Case: Powell v/s Lee

Facts- Powell was a candidate for headmastership of a school. The school managing
committee passed the resolution appointing Mr. Powell. Lee, who was one of the
members of the managing committee happened to be a friend of Mr. Powell. He informed
Powell of his appointment. However, due to some external pressures, the resolution was
withdrawn.

Held- Lee had informed Powell in his friendly capacity and the communication was not
on behalf of the school authorities.
3. Acceptance must be communicated in the prescribed manner only else it
is not binding on the proposer.
If the offer prescribes a mode of acceptance, then it shall be made in that mode only. If
acceptance is communicated in some other manner and the offered remains silent, he is
deemed to have consented to the acceptance, even if it not in the prescribed manner.
When no mode is prescribed, it shall be made in some usual and reasonable manner.

Eg- A sends a letter to B offering to sell his old carriage and asks B to reply by telegram.
B shall reply only by telegram and not otherwise. Even if B accepts otherwise, A can
insist on receiving a telegram. If A does not so insist within a reasonable time, he is
deemed to have assented to B’s acceptance in such mode as had been made by B.

4. Acceptance must be absolute and unqualified.

If the person to whom an offer is made accepts the same subject to some conditions, it is
called qualified acceptance and is not binding on the person who makes the proposal.
In other words, a valid acceptance can be only for the exact terms of the offer as proposed
by the offered. Acceptance with a variation constitutes a counter offer and is not a valid
acceptance.

Illustrations
1) A prospective buyer offers to buy an article from a seller at a certain price to be paid
after three months. Seller accepts the offer provided cash is immediately paid. Such an
acceptance is not binding on the offerer.
2) J offers to sell his cow to K. K replies that he would buy it only if he gave the calf
along with it. This is not a valid acceptance as it is qualified.

5. An offer once rejected is dead and cannot be accepted unless it is revived.

Illustration

Counter offers.

6. Acceptance should emanate from an offer.

Acceptance should only be in response to an offer i.e acceptance cannot precede an offer.
Eg- X cannot say that he accepts to buy Y’s house without an offer from Y.
ACCEPTANCE THROUGH POST

In case of acceptance through post, the communication of acceptance is

complete,

a) as against the proposer, when the letter of acceptance is put in the course
of transmission to him; and
b) as against the acceptor, when it comes to the knowledge of the proposer.

Eg- H, in response to G’s offer, communicates his acceptance by post. As regards G,

communication of acceptance is complete when the letter is posted. And as regards H,
acceptance is said to be communicated when the letter reaches G.

Note:- The proposer becomes bound only when a properly addressed and
adequately stamped letter is posted.

REVOCATION OF A PROPOSAL - Section 5

Revocation means 'withdrawing' or 'taking back.'

A proposal may be revoked at any time before the communication of its

acceptance is complete as against the proposer, but not afterwards.

When a proposal is revoked, offer comes to an end.

Section 6

A proposal can be revoked in any of the following four ways-

1. By communication of notice of revocation by the proposer to the other

party.
2. By lapse of time prescribed in such proposal for its acceptance. If no time
is so prescribed, by the lapse of a reasonable time. What is reasonable
time will depend upon the facts and circumstances of each case.
3. By failure of the acceptor to fulfil a condition precedent to acceptance.
4. By death or insanity of the proposer.

REVOCATION OF ACCEPTANCE - Section 5

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

COMMUNICATION OF REVOCATION

Section 4

Communication of revocation is complete,

i) as 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 the
power of the person who makes it;
ii) as against the person to whom it is made, when it comes to his
knowledge.

Illustrations-
1) A revokes his proposal by telegram. The revocation is complete as against A when the
telegram is despatched. It is complete as against B, when B receives it.
2) Facts - M agreed on Monday to sell his property to N by a written agreement which
stated that “this offer to stay open till Saturday 10 a.m.” In the meantime on Wednesday,
M enters into a contract to sell the property to P. N, who was sitting in the next room at
that time, hears about the deal between M and P. On Friday, N accepts the offer and
delivers to M the letter of acceptance. Is N’s acceptance valid?
Held –
- Acceptance is made before the revocation of the offer by M and well within the
specified time limit set by M in his letter of offer.
- Overhearing by N does not amount to valid revocation by M.
- Hence, N’s acceptance is perfectly valid.
- The treatment would have been different if, before acceptance by N, M had formally
communicated his revocation to him.