Offer and Acceptance

The formation of a legally binding contract under the Indian Contract Act, 1872 begins with two fundamental components: Offer and Acceptance. Without these elements, no agreement or contract can come into existence. These concepts determine how parties initiate and finalize agreements, which then become enforceable by law.

An offer is a proposal made by one party to another, indicating a willingness to enter into a contract on certain terms.

Acceptance occurs when the party to whom the offer is made agrees to the proposal in its entirety.

Offer (Proposal)

Section 2(a) of the Indian Contract Act defines a proposal (or offer) as:

“When one person signifies to another his willingness to do or 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.”

Thus, an offer is an expression of willingness to enter into a contract with a view that it shall become binding upon acceptance.

Essentials of a Valid Offer:

• Offer Must Intend to Create Legal Obligations

A valid offer must be made with the intention to create legal relations and not merely social or moral arrangements. The proposer should be willing to be legally bound if the offer is accepted. This intention distinguishes legal offers from casual statements or friendly commitments. For example, promising to meet someone for dinner is not an offer in the legal sense. But offering to sell property with specific terms and conditions is a valid offer as it carries legal consequences upon acceptance.

• Terms of the Offer Must Be Definite and Certain

The terms of the offer must be clear, definite, and unambiguous. Any vague or uncertain offer is not considered legally valid because it leads to confusion and disputes. The law does not enforce agreements with unclear terms. For instance, saying, “I will sell you my car at a reasonable price,” is too vague. What is ‘reasonable’ can vary greatly. Therefore, to be enforceable, the offer must specify essential details like price, subject matter, quantity, and timing in clear terms.

• Offer Must Be Communicated to the Offeree

An offer must be communicated to the offeree before it can be accepted. Until the offeree is aware of the offer, they cannot legally accept it. Communication can be oral, written, or implied, but it must reach the offeree. If someone performs the terms of an offer without knowing about it, it is not a valid acceptance. In the landmark case Lalman Shukla v. Gauri Dutt, the court held that an offer must be known to be accepted.

• Offer Must Not Contain a Term the Acceptance of Which Would Amount to Acceptance of a Different Offer

A valid offer must be unconditional. If the acceptance of an offer requires modifications or changes to the original terms, it becomes a counter-offer, not an acceptance. A counter-offer terminates the original offer and replaces it with a new one. For an agreement to be enforceable, the acceptance must mirror the offer entirely. This ensures clarity and prevents negotiations from continuing indefinitely without concluding a legally binding contract.

• Offer May Be General or Specific

An offer can be made to the public at large (general offer) or to a specific person or group (specific offer). A general offer can be accepted by anyone who fulfills its terms and is aware of the offer. For example, an advertisement offering a reward for finding a lost item is a general offer. A specific offer, on the other hand, is made to a particular person and can only be accepted by that individual or group.

• Offer Must Not Be Mere Declaration of Intention

A valid offer should not be mistaken for a mere declaration of intention to enter into a contract in the future. Statements that show interest or invite negotiation are not offers. For example, saying “I may consider selling my bike for ₹20,000” is not an offer but an invitation to treat. It lacks the willingness to enter into a legal relationship immediately and therefore cannot be accepted to form a binding contract.

Kinds of Offer:

1. Express Offer

An express offer is one that is clearly communicated through spoken words or written form. It leaves no ambiguity about the proposer’s intention. For example, if A writes to B offering to sell his house for ₹50 lakhs, this is an express offer. It must be direct and clearly state the terms and conditions. Express offers are easier to prove legally since they are documented or verbally confirmed. Courts prefer express offers in commercial transactions because they provide clear evidence of intent and terms agreed upon by the parties involved.

2. Implied Offer

An implied offer is not stated in words but inferred through actions, conduct, or circumstances. It arises from the behavior of the parties involved. For example, when a person boards a public bus, it implies that they agree to pay the fare. No words are exchanged, but the conduct indicates mutual consent. Implied offers are valid and enforceable under the Indian Contract Act. They are especially common in day-to-day dealings like purchasing goods, using services, or other business operations where spoken or written agreements are not practical.

3. General Offer

A general offer is made to the public at large, and it can be accepted by anyone who performs the required conditions. It does not target any specific individual. Once the conditions are fulfilled, the offer becomes binding. A famous example is Carlill v. Carbolic Smoke Ball Co., where the company made a public advertisement offering a reward to anyone who used their product and still got sick. The court upheld the offer as valid. General offers are widely used in advertisements, reward postings, and public tenders.

4. Specific Offer

A specific offer is made to a particular person or a definite group of people. It can only be accepted by the person(s) to whom it is addressed. If a third party tries to accept it, the contract is not valid. For example, A offers to sell his car to B for ₹2,00,000. Only B can accept this offer. Specific offers are common in private business dealings, negotiations, and employment contracts. They ensure the proposer’s intention is limited to a known individual or entity, making the terms and expectations more focused and clear.

5. Cross Offer

Cross offers occur when two parties send identical offers to each other in ignorance of the other’s offer. Though they match, they do not constitute acceptance of one another’s offer, and therefore, no contract is formed. For instance, A sends an offer to sell his car to B, and on the same day, B sends a similar offer to buy A’s car, both unaware of each other’s proposals. Since neither has accepted the other’s offer, these are considered cross offers and do not result in a valid agreement under contract law.

6. Counter Offer

A counter offer is made in response to an original offer by changing its terms. It acts as a rejection of the original offer and proposes a new one. The original offeror can then accept or reject this counter offer. For example, A offers to sell a bike for ₹60,000, and B responds that he is willing to pay ₹50,000. B’s response is a counter offer. It terminates the original offer, and unless A agrees to the new terms, no contract exists. Counter offers are common in negotiations and contract discussions.

Lapse and Termination of Offer:

An offer may lapse or be terminated under the following circumstances:

• By revocation before acceptance
• By rejection
• By lapse of time
• By failure to accept conditionally
• By death or insanity of the offeror

By counter-offer

• By change in law making it illegal

Communication of Offer:

According to Section 4, communication of an offer is complete when it comes to the knowledge of the person to whom it is made.

An offer made without communicating it to the offeree is not valid, and acceptance of such an unknown offer has no legal value.

Case: Lalman Shukla v. Gauri Dutt – A servant, unaware of the reward offer, could not claim the amount.

Revocation of Offer:

As per Section 5, an offer can be revoked at any time before acceptance is complete against the offeror.

However, once the offeree has posted or communicated acceptance, the offer cannot be revoked.

Case: Henthorn v. Fraser – Postal rule discussed regarding revocation.

Acceptance

Acceptance is a fundamental element in the formation of a contract. According to Section 2(b) of the Indian Contract Act, 1872:

“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.”

In simple terms, acceptance is the act of agreeing to the terms of an offer made by another party. It signifies the meeting of minds and the intention to create a legal relationship. Without acceptance, an offer remains a mere proposal and cannot be legally enforced.

Acceptance must be absolute, unqualified, and communicated to the offeror. It must mirror the terms of the offer; any deviation is considered a counter-offer, not acceptance. Acceptance can be made expressly (in words or writing) or implied (through conduct).

For a contract to be valid, the acceptance must be made by the person to whom the offer was made and must be given within the prescribed or reasonable time.

Thus, acceptance transforms a mere offer into a legally binding contract, creating mutual rights and obligations enforceable by law.

Essentials of a Valid Acceptance:

• Acceptance Must Be Absolute and Unqualified

For acceptance to be valid, it must match the offer in every aspect. It should be absolute, unconditional, and mirror the exact terms of the offer. Any deviation, modification, or new condition constitutes a counter-offer, not valid acceptance. A counter-offer terminates the original offer. For instance, if A offers to sell his car for ₹5,00,000 and B replies he will buy it for ₹4,50,000, it is not acceptance. Thus, only unambiguous and full acceptance of the offer creates a legally binding contract.

• Acceptance Must Be Communicated

Acceptance must be communicated to the offeror to be effective. Until the acceptance reaches the offeror, there is no concluded contract. Mere mental acceptance or silent agreement is not sufficient under law. Silence does not amount to acceptance unless the offeror has waived the need for communication. For example, if A offers to sell his house to B and B accepts but doesn’t inform A, no contract arises. Valid acceptance requires that the offeror be aware of it—either orally, in writing, or through conduct that clearly shows assent.

• Acceptance Must Be in the Prescribed or Reasonable Mode

If the offer specifies a particular mode of acceptance, it must be followed strictly. If the offeror prescribes acceptance through a letter, then responding via phone call may be deemed invalid unless the offeror accepts it anyway. If no mode is prescribed, then the acceptance must be made in a reasonable and customary manner. This rule ensures clarity and avoids disputes over how the acceptance was communicated. Failure to comply with the required method may result in the offer being considered unaccepted, and thus, no contract is formed.

• Acceptance Must Be Made Within the Time Specified or Reasonable Time

An offer remains open only for the time specified by the offeror or a reasonable period if no time is mentioned. If acceptance is not communicated within that time, the offer lapses. What constitutes “reasonable time” depends on the nature of the contract and surrounding circumstances. For example, in rapidly changing markets, even hours can be critical. A delayed acceptance, even if otherwise valid, cannot bind the offeror once the offer has lapsed. Timely acceptance ensures both parties are aligned in intention and commitment.

• Acceptance Must Be by the Person to Whom the Offer Is Made

Only the person to whom the offer is addressed can accept it. No third party can accept an offer on behalf of the offeree unless authorized. This requirement ensures that the contract reflects mutual assent between the intended parties. For instance, if A offers to sell goods to B, only B can accept—not B’s friend or associate. This principle protects the integrity of the agreement and avoids confusion over who is bound by the contractual obligations created through offer and acceptance.

• Acceptance Cannot Precede the Offer

Acceptance that comes before an offer is not valid. There must first be an offer before it can be accepted. If someone accepts terms before the offeror has even proposed them, no contract is formed because there is no meeting of minds. This is a basic principle in contract formation: offer comes first, acceptance follows. The sequence is crucial to establishing the intent of both parties. Any reversal of this order creates confusion and lacks the mutual consent necessary to form a legally enforceable agreement.

Communication of Acceptance:

According to Section 4:

As against the proposer (offeror): Communication is complete when it is put in transmission (e.g., when a letter is posted).

As against the acceptor: Communication is complete when the proposer receives it.

This is known as the postal rule of acceptance, recognized in both Indian and English law.

Revocation of Acceptance

Per Section 5, acceptance can also be revoked before the communication reaches the proposer.

Condition: The revocation must reach the proposer before or at the same time as the acceptance.

Acceptance by Conduct

Sometimes acceptance is implied through conduct, rather than explicitly stated.

Example: Taking delivery of goods and making payment constitutes acceptance of the sales terms.

Case: Brogden v. Metropolitan Railway Co. – Conduct amounted to acceptance.

Legal Effects of Offer and Acceptance

When offer and acceptance occur with free consent, lawful object, and consideration, a valid contract is formed under Section 10. This contract becomes binding and enforceable in a court of law.

Thus, both offer and acceptance are not just theoretical concepts but create legally recognized obligations between the parties.

Key differences between Offer and Acceptance