Business Law Complete Notes BBS TU /Offer & Acceptance

CHAPTER-4 OFFER AND ACCEPTANCE 

1. Explain the rules regarding valid offers.

Answer

Offer and acceptance is the most important factors required for forming a valid contract. These are correlative. In order to do or not to do something, one the person has to make an offer and the other person to whom it is made has to accept it.

The word ‘offer or ‘proposal’ are similar and are used interchangeably. In order to covert an agreement into a contract, an offer must make lawfully. It is itself a starting point or first phase of reaching an agreement. 

According to Section 504 (3) (1) of the Civil Code, 2074, “offer means an offer made by one person to another person with the intention of obtaining his or her acceptance to do or abstain from doing any act.”

Section 2 (a) of Indian Contract Act, 1872 defines 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.”

According to Black’s Law Dictionary, “Offer means a promise to do or to refrain from doing some specified thing in the future, a display of willingness to enter into a contract on specified terms, and made in a way that would lead a reasonable person to understand that an  acceptance, having been sought, will result in a binding contract”.  

These definitions reveal the following three essentials of an offer;

• It must be an expression of the willingness to do or abstain from doing something.

• The expression of willingness to do or to abstain from doing something must be to another person. There cannot be a proposal by a person to himself.

• The expression of willingness to do or abstain from doing something must be with a view to obtaining the assent of the other person to such act or abstinence. 

Hence, an offer or proposal is an expression of willingness by one person. It has been put before another person with a view to getting assent from him, and it is made to do or not to do something. However, an offer made without an intention to get the assent of another is meaningless. 

Thus a casual inquiry, ‘Do you intend to sell your motorcycle?’ is not an offer. Similarly, a mere statement of intention, ‘I may sell my motorcycle if I can get Rs. 4000 for it.’ It’s not a proposal. But if M says N, “I will sell you my motorcycle for Rs. 4000”, we have a proposal as it has been made with the object of obtaining the assent of N. 

The person making the offer is called the ‘offeror’ or ‘promisor’ and the person to whom the offer is made is called ‘offeree’ or ‘promisee’ or the person accepting the offer is called ‘promisee’ or ‘acceptor’.

Legal rules regarding a valid offer

This section deals with the essential rules or principles which the Nepalese law/ Civil Code has recognized to be a valid offer. The major rules are as follow;

An offer may be ‘expressed’ or ‘implied’

An offer may be made either by words or by conduct. An offer which is expressed by words, spoken or written is called an ‘expressed offer’ and the one which is inferred from the conduct of a person or the circumstances of the case is called an ‘implied offer.’ 

For example, M says to N that he will sell his motorcycle to him for Rs. 4000. This is an express offer. Similarly, X Transport Corporation runs omnibuses on different routes to carry passengers at the scheduled fares. This is an implied offer by the XTC.

An offer must contemplate giving rise to legal consequences and be capable of creating legal relations

If the offer does not intend to give rise to legal consequences, it is not a valid offer in the eye of law. An offer to s friend to dine at the offeror’s place or an offer to one’s wife to show her movie is not a valid offer and as such cannot give rise to a binding agreement, even though it is accepted and there is a consideration because in social agreements or domestic arrangements the presumption is that the parties do not intend legal consequences to follow the breach of the agreement. But in the agreements relating to business cases, the presumption is just the other way. In business agreements, it is taken for granted that parties intend legal agreements to follow.

The terms of the offer must be certain and not loose or vague

If the terms of offer are not definite and certain, it does not amount to a lawful offer. Unless all the material terms of the contract are agreed upon, there is no binding obligation. Thus, an agreement to agree in the future is not a contract, because the terms of an agreement are uncertain as they are yet to be settled.  For example, X purchases a horse from Y and promised to buy another, if the first one proves lucky. X refused to buy the second horse. Y could not enforce the agreement if being loose and vague.

An intention to offer is not an offer

An offer must be distinguished from an ‘invitation to receive offer’ or as it is sometimes expressed in judicial language an ‘invitation to treat’. In the case of an ‘invitation to receive the offer,’ the person sending out the invitation does not make an offer nut only invites the other party to make an offer. His objective is merely to circulate information that he is willing to deal with anybody who on such information is willing to open negotiation with him. 

Such invitations for the offer are therefore not an offer in the eye of law and do not become agreements by their acceptance.
We may have the following examples of invitation for offer:

Intention to sell: The display of goods with their price tags in a departmental store is merely an invitation of an offer. It is just an attempt to introduce offers to sell. When the buyer carries the goods to the cash counter then the offer is made by the customer. The receipt of payment amounts to a contract. 

Quotations of price: A quotation of a price is a form of advertisement or formal or informal information is only an expression of intention to sell the goods. It is also not an offer.

 
Advertisement: An advertisement inviting applications for a job or inviting tenders to build a house is not an offer. It is only an initiation to make offers. The employee (applicant) or tenderer is the offerer and the application or proposal is called an offer.

Catalog: a catalog of goods or a prospectus of a college is only a form of advertisement. It is an attempt to induce offers to the client, but not an offer.

Auction: An auction to sell particular goods is not an offer. The person who attends the display is not giving assent. These efforts are not adequate to create a contract. Thus for a valid offer, there must be interactions of the parties to create the contractual relationship, which is determined by the nature of the subject matter of the contract. 

The auctioneer is not bound to accept any bid, and the bidder is entitled to withdraw his bid at any time before the acceptance.  The contract is only completed by the fall of the hammer or acceptance of the bid in some other way.

An offer may be conditional

An offer may be made subject to conditions and that must be clearly conveyed to the offeree. But condition against any law, morality, and public policy cannot create legal obligations and unreasonable treatment and ignorance of offeree to the conditions are not valid. For example, A offers to B to sell his bike for Rs. 50,000 within three months if B pays to A  Rs. 10,000 in advance, B must accept the offer first by paying an advance.

An offer must be communicated to the offeree

An offer is effective only when is it communicated to the offeree. Until the offer is made known to the offeree, there can be no acceptance and no contract. Doing anything in ignorance of the offer can never be treated as its acceptance, for; there was never a consequence of wills. This applies to both specific and general offers.  

Without the knowledge of an offer, how can an offeree accept it? Thus, the communication of offer is complete when it comes to the knowledge of the offeree. According to Section 4 of the Indian Contract Act, the communication of an offer is complete when it comes to the knowledge of the person to whom it is made.

Accordingly, Section 508(1) of the Civil Code, ‘once the offeree comes to the knowledge of an offer, the act of making the offer shall be deemed to be completed.’ 

For example, A writes a letter to B offering to sell his house for Rs. 2000,000 but does not send it to B. It is not an offer.  Similarly, A, without knowing that a reward has been offered for the arrest of a particular criminal, catches the criminal and gives the information to the superintendent of police. A, cannot recover the reward as he cannot be said to have accepted the offer when he was not all aware of it.

An offer may be general and specific

An offer may be general or specific. Specific offer is one which is addressed to a definite individual or group of individuals and only such individuals or groups of individuals can accept it. 

Similarly, an offer becomes general when it is addressed to an uncertain individual or the offer becomes general when an offer is made to the general public or the world at large. 

For example, A offers to sell his bike to B at a price of Rs. 40,000. Another person C who is standing nearby B cannot make acceptance on this offer. This is targeted to B particularly. Cable Car Company runs its car from Kurintar to Manakamana. This is an offer to general people at a fixed rate and schedule.

Two identical cross-offers do not make a contract

When two parries make an identical offer to each other, in ignorance of each other’s offer, the offer is ‘cross-offer’. Cross-offers do not constitute acceptance of one’s offer by the other and as such, there is no complete agreement. 

For example, A wrote to B offering to sell him 100 tons of iron at Rs. 2000 per ton. On the same day, B wrote to S offering to buy 100 tons of iron at Rs. 2000 per ton. The letters crossed in the post. There is no concluded contract between A and B because offers were simultaneous, each being made in ignorance of the other, and there is no acceptance of each other’s offer.

These are the major rules regarding valid offer which make an offer capable to create agreement and thereby a contract. With the fulfillment of these rules, an expression of willingness to do or not to do by one person to another creates a legal relationship between them.

2. Explain the rules regarding acceptance.

Answer

A contract emerges from the acceptance of an offer. ‘To accept’ means to agree, to receive or to do something offered. Acceptance is the expression of assent of the party to whom it is made. When the offeree signifies his assent to the offeror, the offer is said to be accepted. An offer, when accepted, becomes a promise.

Section 504 (3)(2) of the Civil Code, 2074 reads, “Acceptance is an assent given by the offeree in the same sense as the offeror has intended.”

Similarly, according to Section 2(b) the Indian Contract Act, 1872, "When the person to whom the proposal is made signifies the assent thereto, the proposal is said to be accepted. A proposal, when accepted becomes a promise”.

Thus, acceptance is the manifestation of the offeree of his assent on the terms of the offer. For example, if A offers to B, ‘If you paid me Rs. 1000, I will sell my radio to you’. Then B if he agrees to purchase and says ‘I agree’ or he pays Rs. 1000 to  A then it amounts an acceptance.

Legal rules regarding a valid acceptance

A valid acceptance must be in conformity with the following rules:

Acceptance must be given only by the person to whom the offer is made

An offer can be accepted only by the person or persons to whom it is made and with whom it imports an intention to contract; it cannot be accepted by another person without the consent of the offeror. 

The rule of law is clear that, if you propose to make a contract with A, then B can’t substitute himself for A without your consent.  An offer made to a particular person can be validly accepted by him alone. Similarly, an offer made to a class of persons can be accepted by any member of that class.  An offer made to the world at large can be accepted by any person who has knowledge of the existence of the offer.

Acceptance must be absolute and unconditional

Acceptance, to be legally effective it must be an absolute and unconditional acceptance of all the terms of the offer. Even the slightest deviation from the terms of the offer makes the acceptance invalid. In effect, a deviated acceptance is regarded as a counteroffer in law. 

For example, L offered M his scooter for Rs. 40,000 M accepted the offer and tendered Rs, 30,000 cash down, promising to pay the balance of Rs. 10,000 by the evening.  There is no contract, as the acceptance was not absolute and unconditional.

Acceptance must be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted

If the offeror expressed no mode of acceptance, the acceptance must be communicated according to some usual and reasonable mode. The usual moods of communication are by words spoken or written or by post or telegram; it is called an express acceptance. 

When acceptance is given by conduct, it is called implied or tacit acceptance. Implied acceptance can be given either by doing some required act, for example, tracing the lost goods for the announcement of the reward or by accepting some benefit or service, for example stepping in a public bus by the passenger. If the offeror prescribes a mode of acceptance, the acceptance is given accordingly will no doubt be a valid acceptance, even if the prescribed mode is funny.

If it differs, the offeror may reject the acceptance, and a relationship cannot be established.  For example, A makes an offer to B and says, “If you accept the offer reply by telephone”. B sent the reply by email. It is not a valid acceptance due to none performing according to the mode prescribed by the offeror.

Acceptance must be communicated by the acceptor

For acceptance to be valid, it must not only make by the offeree but must also be communicated by the offeree to the offeror. Thus, the acceptance must be communicated in some reasonable form. Remaining silent or doing nothing for something cannot be regarded as valid acceptance.  It means that acceptance must be something more than mental acceptance. 

(For more please see the answer of next question) Here

Acceptance must be given within a reasonable time and before the offer lapses and is revoked

To be legally effective acceptance must be given within a specified time limit if any, and if no time is stipulated, acceptance must be given within a reasonable time. Where A applied for certain shares in a company in June but the allotment was made in November and he refused to accept the allotted shares, it was held that the offeror (A) could refuse to take the shares as the offer stood withdrawal and could not be accepted because of the reasonable period during which the offer could be accepted has elapsed.

Acceptance must succeed in the offer

Acceptance must be given after receiving the offer. It should not precede the offer. In a company, the share was allotted to a person who had not applied for them. Subsequently, he applied for shares being unaware of the previous allotment. It was held that the allotment of the shares previous to the application was invalid.

Acceptance cannot be implied from silence and inaction

The acceptance of an offer cannot be implied from the silence and inaction of the offeree or his failure to answer. However, the offeree has by his previous conduct indicated that his silence means that he accepts then silence might also imply valid acceptance.

Section 508 (4) of Civil Code, 2074 clearly states that, If an offeror offers that he will treat the offer as accepted if he hears no about its refusal within specified time such is not communicated the offer cannot be said accepted. The general rule is that silence cannot amount to acceptance. 

The rationale behind this is based on the idea that acceptance must take some form of objective manifestation of the intention of the offeree (i.e. the party to which an offer has been made) to accept the terms of the contract. Such intention is usually best expressed through some form of positive action. 

This is so as to ensure that no one can enforce a contract upon an unwilling party. For instance, person A writes to person B that “If I do not hear from you, I will assume that you have sold your horse to me for Rs.6000”. 

Afterward, B sees the note and is mentally prepared to sell the horse to A for Rs.6000. However, he fails to do so due to some mishandling by his agent. The courts will not find that person B has accepted the contract. This is because although he might have mentally accepted the contract, such acceptance had not been conveyed to A. 

Hence, A will not be able to bring a claim against B for non-delivery of the horse. However, there are exceptions to this, whereby silence may amount to acceptance of the contract. One example is when the offeree has explicitly stated that he wants his silence to be regarded as acceptance of the contract. 

Using the previous hypothetical scenario, if we twist the facts to say that persons A and B have communicated with each other regarding the sale of the horse, and B told A that A should write him a note about the sale of the horse and if A does not receive any reply from him, A may assume that B has agreed to the sale. In such an event, should B not reply to A, acceptance may be found and an enforceable contract may become into existence to bind the two parties.

These are the major rules regarding acceptance that make an acceptance legally effective and form an agreement between the parties.

For answers to more questions from the same chapter, click here