Contract notes

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MERCANTILE LAWS_33e
Page 1

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Index for M.Law
S.No. Name of the Chapter
No. of
Questions
Page No
1. Meaning & Nature of Contract 11 6-19
2. Offer & Acceptance 12 20-38
3. Legal object & Consideration 06 39-54
4. Capacity to Contract 05 55-64
5. Free Consent 08 65-80
6.
Void Agreements, Quasi Contracts and
Contingent Contracts
16 81-96
7. Performance of Contract 09 97-108
8. Discharge of Contract 07 109-119
9. Remedies for breach of Contract 07 120-130
Total: 81

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HIGHLIGHTSOFTHISMATERIAL
Dear Student, Following are the guidelines for reading this hand book on M.Law….
1. Examination trends: At the beginning of the material itself we have given a table
indicating the past examination trends of this subject. At the beginning of each chapter
we have given a table indicating the past examination trends of that chapter. This analysis
will help you to judge the relative importance of each chapter and also relative
importance of each topic or model in each chapter. Based on that judgement you can
easily pay more attention on relatively more important areas.
2. References: For each question we have given the reference of Study Material, Practice
Manual, RTPs, past examinations. This will help you to assess the relative importance of
each question from examination point of view.
3. Purpose of ABC analysis: All the questions are categorized into ABC which shows the
importance of the question from examination point of view. This analysis helps the
student to devote the time on the important areas at the time of exams. However, it is
advisable to read even “C” category questions atleast once. In other words, don’t ignore C
category questions completely.
On the other hand, if you have enough time to prepare then it is recommended to
thoroughly read C category questions also. The decision to leave B category or C category
questions, is purely left to your discretion and it is advisable for you to take the decision
based on the availability of time and your caliber.
In simple words, if you have enough time and if you are capable enough then read all the
questions. If not then leave C category questions. If you are ready to take still more risk
then you can leave B category questions too. Everything depends upon – availability of
time, your caliber and the amount of risk you are ready to take.
4. Significance of text given in ‘Italics’ in some places: The text given in italics indicate that
the matter need not be written, if that question is asked for lesser marks i.e. as a short
answer. However, if the question is asked for more number of marks then the entire
answer must be written. In simple words, in the examination, write the content given in
italics only if time and marks permit.
5. Few questions are to be prepared on your own: Few main questions and practical
questions are marked as “QUESTIONS TO BE PREPARED BY STUDENT ON HIS/HER OWN”.
Those questions will not be discussed by the faculty in the classroom. This is to ensure
that syllabus is completed in time, otherwise we can’t complete the syllabus in time.
6. Purpose of “SIMILAR QUESTIONS”: At the end of each question there are some similar
questions, the purpose of giving similar questions is to make students understand the
different ways of asking the same question. For your convenience we have also given
guidelines for answering such similar questions in the main exam.
7. QUESTIONS FOR ACADEMIC INTEREST ONLY: Questions classified under this heading are
not important from examination point of view and they are given only for your academic
knowledge and are not important from examination point of view. If time permits then it
is advisable to prepare those questions also. If time does not permit then students can
leave those questions as choice. So it is upto you to decide based on your preparation
schedule.
CO & IC Batch: Of course, this point is not applicable for IC batch students i.e. they must
be thorough with the entire content given in the material.

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Are you appearing for Group 1 alone?: If you want to attempt for Group 1 alone then you
shall not take risk. So, it is advisable to read the full content of the material as there will
be enough time too.
8. Approach to practical questions: First get a complete grip on theory conceptually and
then read practical questions, but simply don’t mug up the practical questions. This is to
ensure that you feel comfortable at the examination, as the CA course is a professional
course you won’t always get the same questions every time, therefore in order to clear
the exams you must be conceptually strong.
9. Answering Practical questions: Students are advised to answer the practical questions in
the same format as given in the material (Facts, Provision, Analysis, Conclusion i.e. FPAC).
10.Reference of Practical Questions: At the end of each Theory question, we have given the
reference of practical question to be read correspondingly. Immediately after completion
of each theory question it is advisable to refer the corresponding Practical Questions, as
per the reference given by us.
11.For ‘differences’ type of questions read Fast Track material – For all the chapters the
difference between two concepts (Eg Bailment Vs Pledge, etc.) are included in the Fast
Track material of respective chapters. Please refer the “Fast Track” material for such type
of questions.
12.All Questions in SM, PM, latest RTPs and latest MTPs have been covered in our material.
Our material is like a one stop solution.
13.In final exam nearly 90% of Questions will be covered from our Material.

IPCC_33e_M.Law _Meaning and nature of contract___________________________________6
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1. MEANING AND NATURE OF CONTRACT
TOPIC WISE ANALYSIS OF PAST EXAM PAPERS OF IPCC ( Theory and Practical )
No ABC M05 N05to
M12 N12 M13 N13 M14 N14 M15
1 B - - - - - - - -
2 B - - - - - - - -
3 C - - - - - - - -
4 B 4 - - - - - - -
5 A - - - - - - - -
6 A - - - - - - - -
7 C - - - - - - - -
8 C - - - - - - - -
9 C - - - - - - - -
10 C - - - - - - - -
11 C - - - - - - - -
Q.No.1. Define the terms Promise, Reciprocal promise, Agreement, Contract.
Promise – Sec.2(b): “When the person to whom the proposal is made signifies his assent thereto,
the proposal is said to be accepted. Proposal when accepted becomes a promise”.
Reciprocal Promise –Sec.2(f): Promises which form the consideration or part of the consideration
for each other are called reciprocal promises.
Agreement – Sec.2(e):
Every promise and every set of promises, forming consideration for each other is an agreement.
In simple words, an agreement means a promise. It is created when a person makes an offer to
another person and that other person accepts it.
Thus, Agreement = Offer + Acceptance.
Contract:
1. The word contract was derived from a latin word ‘contractum’. The word ‘contractum’ means
drawn together.
2. In ordinary sense, the term ‘contract’ means, any agreement between any two persons. For
business persons, making of contracts with others is a very important process to put into effect
their business plans.
3. According to Sec.2(h) of the Act, the term contract is defined as "an agreement enforceable by
law". On analysing the definition we find that, the contract consists of two essential elements:
- An agreement, and
- Enforceability by law.

No.1 for CA/CWA & MEC/CEC MASTER MINDS
4. An agreement to become a contract must give rise to a legal obligation which means a duty
enforceable by law.
5. Thus from the above definitions it can be concluded that -
Contract = Accepted proposal + Enforceability by law.
6. “Every agreement and promise enforceable at law is a contract.” - Pollock
7. “Agreement creating and defining obligations between the parties.” - Salmond
Similar Question: Define Contract? (PM)
Ans: Refer above Question
Q.No.2. Write about Legal Enforceability?
Enforceability by Law / Legal Enforceability:
1. Legal Enforceability means creating a legally binding obligation between two
parties.
2. If any one party fails to fulfill his obligation, the other party can take the help of law
to enforce it.
3. Legal enforceability depends upon the intention of the parties i.e. whether they want to enter into
a legally binding agreement or not. (Since intention of parties is supreme.)
4. If the intention of parties can’t be known then the following presumptions will apply.
a) No intention to create legal relations in case of domestic, social and political agreements.
Hence, they do not become contracts.
Any party may challenge the above presumption by proving that, at the time of entering
into agreement, they had intention to create legal relations.
Sometimes agreements between husband and wife are also enforceable:
b) However, in business agreements, usual presumption is that parties intend to create legal
obligations.
E.g.: ‘XYZ’ mobile company enters into contract with A to supply mobile phones regularly.
Here the presumption is that both the parties had the intention to create legal obligations.
c) If the parties in a business transaction intend to rely on good faith and do not want to go to the
court of law, such transaction is not legally binding i.e. it is not legally enforceable.
A husband left his wife. For the purpose of making future arrangement, they agreed
that wife will pay charges in connection with mortgage of the house. It was in writing.
After its completion, husband will transfer the house to wife. The court held, the
agreement is legally binding and the principle of Balfour v. Balfour will not apply
here because the parties had intention to enter into a legally binding contract.
Merritt Vs. Merritt (1970)
This is a well-known illustration of a domestic agreement. In this case, a husband
(Mr.Balfour) was working in Ceylon. During holidays he and his wife (Mrs.Balfour)
went to England to enjoy the leave. When Mr.Balfour was to return to Ceylon, his
wife was advised to remain in England, due to ill health. Mr.Balfour agreed to send a
sum of £30 per month for expenses of maintenance. For some time he sent the
amount but afterwards differences arose between them which resulted in their
separation and he did not send allowance. Mrs.Balfour’s suit for recovery was
dismissed by Lord Atkin on the ground that parties did not have intention to enter
into a legally binding contract.
Balfour Vs. Balfour [(1919) 2 KB, 571]

Conclusion:
1. A promise is the acceptance of a proposal giving rise to a binding contract, and Section 2(h)
requires an agreement to be worthy of being enforceable by law before it is called 'contract'.
2. Where parties have made a binding contract, they create rights and obligations between
themselves.
3. So, Law of Contract deals with only such legal obligations which have resulted from agreements.
Such obligation must be contractual in nature.
4. However, some obligations are outside the purview of the law of contract.
Similar Question: A husband promised to pay maintenance allowance every month to his wife,
which he failed to perform (RTP M 14)
Ans Refer Point No 4
(IMMEDIATELY REFER PRACTICAL QUESTION NO.2, 3, 4, 11, 12)
Q.No.3. All Agreements are not Contracts, but all Contracts are Agreements. Explain.
1. The term agreement is a wider term than the term contract.
2. It includes variety of agreements such as personal, social, domestic, lawful, unlawful, void,
voidable, etc. Some of them are enforceable by law and others are not.
3. Agreements which are not enforceable by law are definitely not contracts as per Sec.2 (h).
4. Hence, it is generally said that all agreements are not contracts, but all contracts are agreements.
Q.No.4. Explain the Essential Elements of a Valid Contract?
According to Section 10, "All agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object, and are not hereby
expressly declared to be void." The following essential elements must co-exist in order to make a
valid contract:
1. Proper offer and Proper acceptance with intention to create legal relationship.
2. Lawful Consideration and Lawful Object.
3. Capacity to contract.
4. Free Consent.
5. Agreements not declared void or illegal.
6. Certainty of meaning.
7. Possibility of performance of an agreement.
8. Necessary legal formalities.
This is a very good example of a business deal in which parties did not intend to
create legal relations. As per the facts of the case, an agreement was drawn
between the American and the English firms. The agreement mentioned that “this
agreement is not entered into as a formal legal agreement and shall not be subject
to legal jurisdiction in the law courts.” The agreement was terminated by one of the
parties and other party brought an action for breach of contract. Held, the agreement
was not binding contract as there was no intention to create legal relations.
Rose & Frank Co. Vs. J.R. Crompton & Bros. Ltd. (1925) A.C. 445
Copyrights Reserved
To MASTER MINDS, Guntur

Let us discuss each point in a detailed manner:
1. Intention to create legal relationship: The parties ought to have the intention to create legal
obligation between them through the form of offer and acceptance. They should have intention to
impose duty on the promisor to fulfill the promise and bestow a right on the promisee to claim its
fulfillment. It must not be merely a moral one but it must be legal. If such intention on the part of the
parties is lacking at the time of making the contract, there will be no valid contract between them.
2. "Lawful consideration" and “Lawful object”: It is an essential element of a valid contract.
Consideration is a technical word meaning thereby quid pro quo i.e. something in return. It must
result in benefit to one party and detriment to the other party or a detriment to both.
Also, the object of the agreement must be lawful. It must not be illegal, immoral, or opposed to
public policy.
If these two essential elements are there then we can say that there is a contract which prima-
facie will hold good; or at least we can say that there is an existence of contract, although some
more necessary elements of validity may be wanting.
3. Competent parties: The parties to a contract must have capacity (legal ability) to make valid
contract. In every case, there must be assent of the parties. If, therefore, either of the parties to an
agreement is deprived of the use of his understanding or if he be deemed by law not to have
attained it, there can be no such agreement which shall bind him. Section 11 of the Indian
Contract Act specifies that every person is competent to contract, provided:
a) is of the age of majority according to the law to which he is subject, and
b) who is of sound mind, and
c) is not disqualified from contracting by any law to which he is subject.
In other words:
a) A minor,
b) A person of unsound mind (a person of unsound mind can enter into a contract during his
lucid intervals) and
c) A person disqualified from contracting by any law to which he is subject, e.g. an alien enemy,
foreign sovereigns and accredited representatives of a foreign state, insolvents and convicts
are not competent to contract.
4. Free consent: The consent of the parties must be genuine. The term 'consent' means parties to a
contract must agree upon the same thing in the same sense i.e. there should be consensus -ad-
idem. Consent is said to be not free when it is vitiated by coercion, undue influence, fraud,
misrepresentation or mistake. In such cases, the contract becomes voidable at the option of the
party whose consent is not free.
5. The agreement not expressly declared void: The agreement must not be one, which the law
declares to be either illegal or void. A void agreement is one, which is without any legal effects.
Illegal agreement is an agreement expressly or impliedly prohibited by law and hence punishable
in nature.
6. Certainty of meaning: The agreement must be certain and not vague or indefinite.
7. Possibility of performance of an agreement: The terms of agreement should be capable of
performance. An agreement to do an act impossible in itself cannot be enforced.
8. Compliance of necessary legal formalities: Wherever a particular type of contract requires by
law to be in writing and registered, it must comply with the necessary formalities as to writing,
attestation and registration, otherwise unenforceable.
Conclusion: When the parties to an agreement want to make legally enforceable agreement, the
agreement should satisfy all the conditions stated in Sec.10 of the Indian Contract Act. If any of these
conditions is not satisfied, an agreement is not enforceable at law.

Q.No.5. Write about Different types of Contracts?
Valid Contract: An agreement which is binding and enforceable is a valid contract. It contains all the
essential elements of a valid contract. Agreements which satisfy all the essential conditions of Sec.10
are enforceable at law. Such contracts are called valid contracts.
Void Agreement:
1. If an agreement fails to meet any of the conditions in Sec.10, it is termed as void agreement.
2. Such types of agreements are void-ab-initio which means void from the beginning.
3. Legal meaning of the term ‘void’ is - Null and ineffectual i.e. having no legal validity. A void
agreement has no legal effect in the eyes of law. It does not create any rights or obligations. Both
the parties cannot enforce it in the court of law.
4. Thus a void agreement never matures into a contract.
Void Contract:
1. Sometimes it may happen that a valid contract is formed initially but subsequently it may become
void. Then it is called void contract.
2. A valid contract may become void due to supervening or subsequent impossibility. Impossibility
can be either legal impossibility or physical impossibility.
3. It is a contract without any legal effect and cannot be enforced in a court of law.
4. Sec.2 (j) defines a void contract as “a contract which ceases to be enforceable by law becomes
void when it ceases to be enforceable”.
Voidable Contract:
1. As per Section 2(i), “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.”
2. The party entitled to avoid the contract may or may not avoid it.
3. If the parties decide to avoid it, it can’t be enforced in the court of law.
4. If the parties choose not to avoid the contract, it is a valid contract.
Illegal Agreements / Unlawful Contracts:
1. Illegal contract is a contract which the law forbids to be made. The court will not enforce such
contract but also the connected contracts. All illegal agreements are void but all void agreements
or contracts are not necessarily illegal.
2. Generally speaking, an agreement which is expressly or impliedly prohibited or forbidden by law
is an illegal agreement.
3. Such an agreement may either be against the law of the land or opposed to public policy or be
criminal or immoral in nature.
4. The term “Illegal agreement” has not been defined in the Indian Contract Act. However, Sec.23 of
the Act states that the object or consideration of an agreement is unlawful in any of the following
cases:
a) If it is forbidden by law,
b) If it is of such a nature that, if permitted, it would defeat the provisions of any law,
c) If it is fraudulent,
d) If it involves or implies injury to the person or property of another,
e) The court regards it as immoral,
f) The court regards it as opposed to public policy.
ON THE BASIS OF VALIDITY

5. The term unlawful agreement is wider in its scope than the term illegal agreement. Thus all the
agreements covered under the above stated six heads are not illegal agreements.
6. Only the agreements forbidden by law, agreements opposed to public policy, agreements of
criminal or immoral nature are included in illegal agreements.
7. Therefore, it is true that every illegal agreement is unlawful but every unlawful agreement need
not be illegal.
8. The parties to an illegal agreement are punishable as per the law of the country.
Unenforceable Contracts:
1. Where a contract is good in substance but because of some technical defect i.e. absence in
writing, barred by limitation, non-registration, insufficient stamp duty, etc. one or both the parties
cannot sue upon it, it is described as an unenforceable contract.
2. After the technical defect is removed, these contracts become enforceable.
Express Contract:
1. A contract which is made by words either spoken or written is said to be an express contract.
2. According to Section 9 in so far as the proposal or acceptance of any promise is made in words,
the promise is said to be express.
3. In such a contract, the terms and conditions depend on the words of the parties either face to face
or with the help of letters, telegraph, phone, telex, fax, e-mail, etc.
Implied Contract:
1. According to Section 9 in so far as such proposal or acceptance is made otherwise than in words,
the promise is said to be implied.
2. By implied contract means implied by law (i.e.) the law implies a contract though parties never
intended.
Note: Actually this explanation aptly suits for Quasi Contract but not for Implied Contract. But as it
is given in ICAI Study Material, we have to follow the same until ICAI amends the same.
3. An implied contract is inferred from the acts or conduct of the parties or by their surrounding
circumstances but not by the written or spoken words of the parties.
4. An implied promise results in an implied contract.
Examples:
a) A delivers goods by mistake at B’s warehouse instead of at C’s place. Here there is an
obligation on the part of B to return the goods to A, because they never intended to enter into
a contract.
Note: This example is not actually related to implied contract. This example is related to Quasi
Contract. But as it is given in Study Material, we have to follow the same until Study Material
is amended.
Tacit Contract:
1. Tacit Contract is said to be tacit when it has to be inferred from the conduct of the parties.
2. Law experts also use the term “Tacit Contract” which is almost synonymous with the term implied
contract.
3. It should be noted that the term “Tacit contract” has not been used in the Indian Contract Act.
ON THE BASIS OF FORMATION

Examples:
a) Obtaining cash through Automatic Teller Machine.
b) Sale by fall of hammer at an auction sale.
Quasi Contract:
1. A quasi-contract is not an actual contract but it resembles to a contract. It is created by law under
certain circumstances the law creates and enforces legal rights and obligations when no real
contract exists. Such obligations are known as quasi-contracts.
2. It is not a real contract because it does not result from any intentional agreement.
3. It is not created as a result of exchange of promises by the parties.
4. Therefore, it does not have all the essentials of a valid contract.
5. Thus, a quasi-contract is a contract implied by law. It is not made by the parties, but imposed upon
the parties by the law on the ground of principle of equity.
6. The principle of equity states that “nobody could be allowed to enrich himself at the cost of the
other”.
E.g.: Obligation of finder of lost goods to return them to the true owner or
liability of person to whom money is paid under mistake to repay it, cannot
be said to arise out of a contract even in its remotest sense, as there is
neither offer and acceptance nor consent. These are said to be quasi-
contracts.
E - Commerce Contract: An E-commerce contract is one which is entered into between two parties
via Internet. In Internet, different individuals or companies create networks which are linked to
numerous other networks. This expands the area of operation in commercial transactions for any
person.
E.g.: Krishna ordered M.law book from an online book store. The book store makes the delivery in
four working days and Krishna pays for the same.
Executed Contract:
1. If the consideration for the promise in a contract (i.e., any act or forbearance) is given or
executed, such type of contract is called contract with executed consideration.
2. Where all the parties to a contract have performed their obligations under the contract, it is known
as executed contract.
3. Nothing remains pending by any of the parties under such contract.
4. It is a completely performed contract.
Executory Contract:
1. It is so called because the reciprocal promises or obligations which serves as consideration is to
be performed in future.
2. Where all or some of the parties to a contract are still to perform their respective obligations in the
contract, the contract is known as executory contract.
3. In a contract, if one party has already performed the contract but the other is yet to perform his
part of the contract, the contract will be known as Partly Executed and Partly Executory..
ON THE BASIS OF PERFORMANCE
Copyrights Reserved

Executory Contracts are further classified into:
1. Unilateral Contract:
a) A unilateral contract is a one-sided contract in which only one party has to perform his
promise or obligation to do or forbear.
b) Unilateral contracts are also known as contracts with executed consideration.
2. Bilateral Contract:
a) Where the obligation or promise in a contract is outstanding on the part of both the parties, it
is known as bilateral contract.
b) These contracts are also known as contracts with executory consideration.
Multilateral Contract: In this type of contract more than two parties are involved. These are very
complex contracts and generally take international character.
(IMMEDIATELY REFER PRACTICAL QUESTION NO.5, 6, 7, 8, 9, 10)
Q.No.6. Explain the classification of Contracts as per English law?
The English Law Classifies the Contract into two types:
1. Formal contracts. 2. Simple contracts.
1. Formal Contracts: (Formal Contracts include):
a) Contract of Record: A contract of record is either a judgment of a court or a recognizance. A
judgment is an obligation imposed by a Court upon one or more persons in favour of another
or others. As a matter of fact it is not a contract in the real sense, since it is not based upon
any agreement between the two parties. A recognizance is a written acknowledgement of a
debt due to the State. It is usually met in connection with criminal proceedings. Contracts of
record derive their binding force from the authority of the Court.
b) Contract under Seal: A contract under seal is one which derives its binding force from its
form alone. It is in writing and is signed, sealed and delivered by the parties. It is also called a
deed or a specialty contract. No consideration is, however, necessary in the case of contracts
under seal.
2. Simple Contracts: All contracts which are not made under seal are known as simple contracts.
These contracts are made by words of mouth. All simple contracts must be supported by
consideration. These contracts are also known by the older name - Parol contracts.
Q.No.7. Miscellaneous.
1. Jus-in-rem (Right against whole world): Jus-in-rem” implies a right available to a person
against the whole world.
2. Jus-in-personam (Right against particular person or persons):“Jus-in-personam” means a
right against a particular person or persons.
3. Contract creates right in personam: The right created by a contract is purely personal in nature
(i.e. right in personam) and only enforceable by action against the party in default.
4. Plaintiff: Plaintiff is a person who brings a suit against another person in the court.
5. Defendant: Defendant is a person who is sued in the court.
Copyrights Reserved

Q.No.8. What is Mercantile Law or Commercial Law?
1. Mercantile Law is not a separate branch of law.
2. Basically, it is a part of Civil Law which deals with the rights and obligations of mercantile persons
arising out of mercantile transactions in respect of mercantile property.
3. It includes laws relating to various contracts, partnership, companies, negotiable instruments,
insurance, carriage of goods, etc.
Q.No.9. Explain the Different Sources of Mercantile Law?
1. English Mercantile Law: English laws are the primary sources of Indian Mercantile Law.
2. Indian Statute: The various Acts passed by the Indian Legislature are the main sources of Mercantile
law in India, e.g. Indian Contract Act, 1872, The Sale of Goods Act 1930, The Indian Partnership Act
1932, The Negotiable Instruments Act 1881, The companies Act, 1956.
3. Judicial Decisions: The past judicial decisions of English courts and Indian courts are also one
of the sources of law. Wherever the law is silent on a point, the judge has to decide the case
according to the principles of equity, justice and good conscience.
4. Customs and Usages of trade: The customs and usages of trade are also one of the sources of
Mercantile law in India.
Q.No.10. Explain the Meaning, Scope and Applicability of Indian Contract Act, 1872?
1. The Indian Law relating to contracts is now embodied in the Indian Contract Act, 1872.
2. Originally the Act contained 266 sections in 11 Chapters.
3. But in the year 1930, its provisions relating to “Sale of Goods” and in the year 1932, the
provisions relating to “Partnership” were repealed from this Act and separate Acts were enacted
for that purpose.
4. As on the date, the Contract Act contains the following provisions:
a) General Principles of the law of contracts and Quasi contracts [Secs.1 to 75]. These principles
apply to all kinds of contracts irrespective of their nature.
b) Certain special kinds of contracts i.e.
i) Indemnity & Guarantee [Sec.124 to 147];
ii) Bailment & Pledge [Secs.148 to 181]; & Contract of Agency [Secs.182 to 238]
5. Sections 1-75 of the Contract Act lays down general principles relating to contracts. It does not lay
down the rights and duties of the parties to a contract.
6. The parties are free to make their own terms and conditions of a contract subject to the provisions
of the law of the land.
Enforcement of the Act:
1. The Act came into force on 1st September, 1872.
2. The Act is not retrospective and does not apply to contracts entered into before it came into force.
3. Hence, the contracts entered into prior to 1st September, 1872 and to be performed after passing
of this Act are not hit by this Act.
QUESTIONS FOR ACADEMIC INTEREST ONLY

Extent of the Act: It extends to the whole of India except the State of Jammu and Kashmir.
Applicability of the Act:
1. The Act applies to all contracts in India. It does not deal with the place where contract is made.
2. The express provisions of the Act are applicable to both Hindus and Mohammedans and override
the provisions of the Hindu Law and of the Mohammadian Law.
The Act is not Complete and Exhaustive:
1. The Contract Act is not a complete and exhaustive code dealing with the law of contracts.
2. For example, the laws relating to sale of goods, partnerships, negotiable instruments, transfer of
property, insurance etc., have not been incorporated in it. Separate Acts have been enacted to
deal with such special contracts.
(IMMEDIATELY REFER PRACTICAL QUESTION NO.1)
Q.No.11. Explain the Need and Importance of the Indian Contract Act, 1872?
1. The Law of Contract is the most important branch of Business / Mercantile / Commercial laws.
2. It is very important not only for the business world, but also for every one of us, because we all
enter into contracts of one kind or the other in all walks of life.
3. The Indian Contract Act is so much infused in our daily lives that it affects all of us, for every
purchase that one does, or a loan of a book that one does with other, or a ride one takes in a bus
and many other transactions of daily life. We enter consciously or unconsciously into number of
agreements conferring the rights and the duties on one and the other.
4. Bread, butter, home-appliances, clothes, books, stationery, journey-tickets, Newspaper, Milk etc.
are some of the goods and services we buy or borrow in our daily life. For that purpose we enter
into contracts of different kinds.
5. The Law of Contracts seeks to regulate the behaviour of persons who make contracts.
6. It also determines the circumstances under which a promise or an agreement shall be legally
binding on the person making it.
7. It also provides remedies, available in the court of law against the person who fails to fulfill his
contractual obligations.
8. Thus this law is ubi jus, ibi remedium i.e., where there is a right, there is a remedy.
9. The law relating to contracts is contained in the Indian Contract Act, 1872 based mainly on
English Common Law.
10. This Act shall not affect any usage or custom of trade. It lays down the general principles of the
contract law, thus it is not a complete and exhaustive law on all types of contracts.
Until now, a minor amendment in Section 28 of the Act was made by the Indian Contract
(Amendment) Act, 1996.
Q.No.1. X and Y of Jammu entered into a contract on 1st September, 2006 as per the provisions of
the Indian contract Act. They want to enforce the contract as per the provisions of this Act. Will they
succeed?
Facts of the case: X and Y of Jammu entered into a contract on 1st
September, 2006 as per the
provisions of the Indian contract Act, and they want to enforce the contract.
Issue/ Question: – Whether the Indian contract Act, 1872 applies to the contract between X and Y
Law/Provision: Sec 1- Extent and Commencement of Indian contract Act, 1872.
PRACTICAL QUESTIONS

Extent - Whole of India except to the state of Jammu & Kashmir and it shall come into force on the 1st
day of September, 1872.
Analysis: As per Sec.1 of this Act, the Act does not apply to the state of Jammu & Kashmir, so the
contract between X and Y in the state of Jammu & Kashmir cannot be enforced by them.
Conclusion: They will not succeed in enforcement of the contract.
Q.No.2. X Invites Y to dinner. Y accepts the invitation but X failed to attend. Can X sue Y for the
damages?
Facts of the case: Y accepted the X’s invitation to attend for dinner, but failed to attend for dinner.
Issue / Question: – Can X sue Y for damages for breach of contract?
Law/Provision: There is no provision in the Indian Contract Act nor there has been any reported
decision in India, requiring that an offer or acceptance should be made with the intention of creating
legal relation. But in English law, it is a settled principal that “To create a contract, there must be a
common intention of the parties to enter into legal obligations”. In Balfour vs. Balfour this principle
was excused that there are arrangements between parties which do not result in contract within the
meaning of the term contract.
Analysis: Therefore, in the case of arrangements regulating social relations, it follows almost as a
matter of fact that the parties do not intend legal consequences as to follow.
Conclusion: The contract between ‘X’ and ‘Y’ is a social contract. In the case of Social, Domestic
and Political agreements, the legal presumption is that parties do not have an intention to create legal
relations. Therefore, ‘X’ cannot sue Y for damages.
Q.No.3. X makes a promise to his wife Y to give her pocket money of Rs. 1,000 per month. After 6
months, he stops of giving money as he promised. Can Y claim damages from X.
Facts of the case: X promised Y, his wife to give pocket money of Rs.1,000. But he stopped giving
money after six months.
Issue / Question: – Can ‘Y’ enforce the contract?
Law / Provision: There is no provision in the Indian Contract Act nor there has been any reported
matter of fact that the parties do not intended legal consequences as to follow.
Conclusion: The agreement between ‘X’ and ‘Y’ cannot be enforced because it is a domestic
agreement. In the case of domestic agreement, the legal Presumption is that, parties do not have an
intention to create legally binding obligations. Therefore, for the reasons mentioned above, ‘Y’ cannot
enforce the contract.
Q.No.4. Father promised to pay his son a sum of Rs. One lakh if the son passed C.A. examination in
the first attempt. The son passed the examination in the first attempt, but father failed to pay the
amount as promised. Son filed a suit for recovery of the amount. State along with reason whether
son can recover the amount under the Indian Contract Act, 1872. (M 05 – 4M)
Facts of the case: Father promises to his son that, if he passed C.A examination in first attempt, he will
give one lakh to him. Son passed the examination, father failed to give the money that he promised.
Issue / Question: Whether the son can enforce the contract to recover the amount promised by his father
Copyrights Reserved

Law / Provision: There is no provision in the Indian Contract Act nor there has been any reported
matter of fact that the parties do not intended legal consequences as to follow.
Conclusion: The agreement between Father and Son cannot be enforced because it is a domestic
agreement. In the case of domestic agreement, the legal Presumption is that, parties do not have an
intention to create legally binding obligations. Therefore, for the reasons mentioned above, Son
cannot enforce the contract.
Q.No.5. X polished Y’s shoes without being asked by Y to do so. Y does not make any attempt to
stop X from polishing the shoes. Is Y bound to make payment to X?
Facts of the case: X polished shoes of Y without being asked by him. Y did not stop his attempt.
Issue / Question Involved: Is ‘Y’ bound to make payment to ‘X’?
Law / Provision: Sec 70 - Liability to pay for non – gratuitous acts - “Where a person lawfully does
anything for another person, or delivers anything to him, not intending to do so gratuitously, and such
other person enjoys the benefit thereof, the later is bound to make compensation to the former in
respect of or to restore, the thing so done or delivered’.
Analysis: See 70 - Creates liability to pay for the benefits of an act which the doer did not intend to
do gratuitously. It is explained that three conditions must be satisfied before this section can be
invoked:
1. A Person should lawfully do something for another person or deliver something to him.
2. In doing the said thing or delivering the said thing he must not intend to act gratuitously. &
3. The other person for whom something is done or to whom something is delivered must enjoy the
benefit thereof.
Conclusion: In the given problem ‘Y’ enjoyed the service rendered by ‘X’ which is not intended to do
gratuitously. Therefore, law imposes obligations U/S 70 to pay for the services. Hence, ‘Y’ is bound to
pay to ‘X’.
Q.No.6. X agrees to marry Y. Y dies before the marriage takes place. Is it a void agreement?
Facts of the case: X agrees to marry Y, who was dead before the marriage has taken place.
Issue / Question Involved: Is it a void agreement?
Law / Provision: Sec. 2(g) or sec. 2(j) and sec. 56
Sec. 2(g) states that an agreement not enforceable by law is said to be void.
Sec. 2(j) states “A contract which ceases to be enforceable by law becomes void when it ceases to
be enforceable”, and U/S 56 “A contract to do an act, which after the contract is made, becomes
impossible by reason of some event, becomes void when the act becomes impossible or unlawful”.
Analysis: When we analyze these sections mentioned above, we can say that void agreement is
entirely different from void contract. Void agreement is void abinitio i.e. from the beginning it is void.
But void contract is not void abinitio. It becomes void subsequently i.e. the contract is valid at the
beginning, but subsequently, if some event happens, which is not controlled by the parties, it
becomes impossible for performance or it may become unlawful. Then the contract becomes void.
Copyrights Reserved

Conclusion: By the given problem, after the conclusion of the contract between ‘X’ and ‘Y’ for
marriage, ‘Y’ dies. The contract was, at the time of formation, was perfectly valid, but subsequently,
on the death of ‘Y’ it becomes void. Therefore, the contract between ‘X’ and ‘Y’ is not void agreement
but void contract.
Q.No.7. X agreed to sell a particular horse to Y. Later on, it was discovered that the horse was dead
at the time of making the contract. Advise the parties.
Facts of the case: X agreed to sell a particular horse to Y, which was dead at the time of making the
contract.
Issue / Question involved: Whether the contract is void
Law / Provisions: Sec. 20 – “Where both the parties to an agreement are under a mistake as to a
matter of fact essential to the agreement, the agreement is void.
Analysis: The mistake as to subject matter of contract may be as regards the existence, title, identity,
price, quantity or quality. This problem given above relates to existence of subject matter of contract.
Conclusion: Both the parties of contract are under a mistake. Therefore, according to sec. 20, the
agreement is void and it cannot be enforced.
Q.No.8 X agrees to pay Rs. 1,00,000 to Y if Y does not marry throughout his life. Y promises not to
marry at all but later on X refuses to pay Rs. 1,00,000. Advise Y.
Facts of the case: Y agrees not to marry throughout his life, for which X agrees to pay Rs.1,00,000.
Issue/Questions involved: Can ‘Y’ recover his amount from ‘X’?
Law/Provision: Sec 26. Agreement in restraint of marriage is void – “Every agreement in restraint of
the marriage of any person, other than a minor is void.
Analysis: Agreements in restraint of marriage is bad, as being opposed to public policy. According to
law, marriage and the married status being the right of every individual. Any agreement which
prevents a person from marrying is void.
Conclusion: By an agreement ‘X’ restrained ‘Y’ from marrying. Therefore, the agreement is void as
being opposed to public policy U/S 26. So, “Y’ cannot recover the promised amount from ‘X’.
Q.No.9. X threatens to kill Y if he (Y) does not sell his house to X for Rs. 1, 00, 000. Y agrees. X
borrows Rs. 1,00,000 from Z who is also aware of the purpose of the loan. What is the nature of the
agreement between X and Y and X and Z?
Facts of the case: X threatens to kill Y if he did not sell his house for Rs.1,00,000. X borrowed the
amount from Z who is also aware of the purpose.
Issue / Provisions: What is the nature of agreements between ‘X’ and ‘Y’ and ‘X’ and ‘Z’?
Law/Provision: Sec.10, Sec.14, Sec.15 and Sec.19.
According to Sec.10 - One of the essential elements of a valid contract is “free consent”. Sec.14 states
that Consent is said to be free when it is not caused by Coercion or Undue Influence or Fraud or
misrepresentation or, mistakes subject to the provisions of Sec. 20, 21 and 22.
Sec. 15 defines “Coercion” as “Committing or threatening to commit any act forbidden by Indian penal
code, 1860 and Sec. 19 result of coercion is that the agreement is voidable.
Analysis: A Contract may be violated by the absence of free consent. The consent obtained by coercion
is not free consent and the agreement is voidable, that can be avoided by the aggrieved party.

Conclusion: In the problem, ‘X’ obtained the consent of ‘Y’ by threatening him to kill. Therefore, it
amounts to coercion. It lacks free consent. The agreement between ‘X’ and ‘Y’ is voidable. In pursuit
of the aforesaid contract ‘X’ borrows one lack rupees to pay for the house which is a valid contract as
borrowing for purchase of house is lawful.
Q.No.10. State with reason whether there is any contract made in the following case as per the
Indian Contract Act, 1872: “J puts three one rupee coins in the slot of a platform ticket vending
machine at the Railway Station”
In this case there comes into existence a valid contract as soon as J puts three one rupee coins in
the slot of the ticket vending machine. This amounts to acceptance on the part of J, of an implied
offer by the owner of the ticket vending machine.
Q.No.11. Mr. X promises to pay Rs. 1,000 per month to Mrs. X but fails to pay the promised amount.
Mrs. X filed a suit against her husband for breach of this agreement. Will she succeed?
Facts of the case: X promised Y, his wife to give an amount of Rs.1,000 per month. But fails to pay
the amount. Mrs. X filed a suit against Y for breach of contract.
Provisions and Analysis: Agreements of moral, religious or social nature like promise to attend
marriage, birthday party etc. are not treated as contracts because they are not intended to create
legal duty enforceable by law as the parties to such agreements never intended to create legal
consequences for breach thereof. It is a social agreement and the usual presumption in such
agreement is that the parties do not intend to create legal relationship.
Conclusion: She will not succeed because it was a domestic agreement and the parties never
intended to create any legal relations. [Leading case: Balfour Vs. Balfour].
Q.No.12. X Ltd. was appointed as an agent by Y Ltd., by an agreement. One of the clauses of the
agreement provided that, “This agreement is not entered into as a formal or legal agreement and
shall not be subject to legal jurisdiction in the law courts “. Is this agreement a valid contract?
Facts of the case: X Ltd. appointed Y Ltd. as an agent by an agreement with a clause in it that, this
agreement cannot be legally enforceable.
Provisions and Analysis: An agreement enforceable by law is a valid contract. In other words if an
agreement satisfies all the requirements laid down in section 10 is said to be a valid contract. If any of
the essential requirements is missing, it is not a valid contract. [Leading Case: Rose & Frank
Company v. Crompton Brothers]
Conclusion: This agreement is not a legally binding contract because there was no intention to
create relations.
THE END
Executed By: Ameenuddin Sir
Verified By: Y.V.Raveendra SirCopyrights Reserved
SOME PEOPLE COME IN YOUR LIFE AS BLESSINGS,
OTHERS COME IN YOUR LIFE AS LESSONS.

IPCC_33e_M.Law_Offer & Acceptance____________________________________20
Ph: 98851 25025/26 www.mastermindsindia.com
2. OFFER AND ACCEPTANCE
TOPIC WISE ANALYSIS OF PAST EXAM PAPERS OF IPCC ( Theory and Practical )
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Q.No.1. Define the term Offer / Proposal. Explain the Legal Rules for Valid Offer.
Introduction:
1. An offer is a proposal by one party to another to enter into a legally binding agreement with him
2. An offer is the starting point of an agreement. An offer is also called ‘proposal’.
3. The person making the proposal or offer is called the ‘proposer’ or ‘offeror’, and the person to
whom the offer is made is called the ‘offeree’ or ‘proposee’ and after acceptance of offer the
offeror becomes ‘promisor’ and the person accepting the offer becomes the ‘promisee’ or
‘acceptor ’.
Definition [Sec.2(a)]:
1. The words proposal and offer are used interchangeably and it is defined under Sec.2(a) of the
Indian Contract Act, 1872 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.”
2. Thus, for a valid offer, the party making it must express his willingness ‘to do’ or ‘not to do’
something. But mere expression of willingness does not constitute an offer.
For instance, where ‘A’ tells ‘B’ that he desires to marry by the end of 2004, it does not constitute
an offer of marriage by ‘A’ to ‘B’.
3. Therefore, to constitute a valid offer expression of willingness must be made to obtain the assent
(acceptance) of the other.
Thus, if in the above example, ‘A’ further adds, ‘Will you marry me’, it will constitute an offer.
1. Offer consists of willingness to do some act or not to do any act: Offer may be in the form of
doing or not doing (abstinence) or restraining from doing (self denial) any act. Simply, an offer can
be positive or negative.
2. Offer must be capable of creating legal relationship: If the offer does not intend to give rise to
legal consequences and creating legal relations, it is not considered as a valid offer in the eyes of
law. A social invitation, even if it is accepted, does not create legal relations because it is not so
intended, An offer, therefore, must be such as would result in a valid contract when it is accepted.
Legal Rules for Valid Offer

IPCC_33e_M.Law_Offer & Acceptance_____________________________________21
3. The offer must be distinguished from an invitation to offer: An invitation to offer means the
person inviting the other party to make an offer. His object is only to circulate the information that
he is willing to deal with anyone who, on such information, is willing to have negotiations with him.
4. An offer may be specific or general. An offer can be made to either public at large or to any
specific person or group of persons.
5. An offer may be conditional: An offer can be made subject to any terms and conditions by the
Offeror. The Offeree will have to accept all the terms of the offer, otherwise the contract will be
treated as invalid.
6. The terms and conditions of the offer must be clear, definite and unambiguous:
a) If the terms of an offer are vague or indefinite, its acceptance cannot create any contractual
relationship.
b) It should not be loose or vague. A vague offer does not convey the actual meaning of the offer.
c) If the agreement contains reference for ascertaining a vague term, the agreement is not void
on the ground of its being vague.
7. The offer must be communicated: An offer, to be complete, must be communicated to the
person to whom it is made. Unless an offer is communicated, there can be no acceptance by it.
An acceptance of an offer, in ignorance of the offer, is not acceptance and does not create any
right on the acceptor.
8. Communication of complete offer (or) Standard form of Contracts:
a) It is the duty of the offeror to communicate all the terms of the offer (i.e. complete offer) to the
offeree.
b) The special terms of the offer must also be communicated along with the offer otherwise the
offeree will not be bound by these terms.
c) Generally special terms arise in case of standard form of contracts with big companies such
as insurance companies, railways, shipping companies, banking companies, hotel companies,
dry cleaners, etc.
d) Sometimes some conditions attached to the contract will be printed on the front side of the
ticket. In such a case communication is complete and offeree is bound by those conditions.
Offeree can't say that he didn’t or could not read those conditions.
e) If the conditions are printed in a language which the offeree doesn’t know then it is the duty of
the offeree to ask for the translation before accepting the offer. Otherwise, it will be presumed
that he knows them and he will be bound by them.
f) If those conditions are printed on the back side then it is the duty of the offeror to indicate
some mark that conditions are printed on the back side. For example, "For conditions see
back". Then only offeree will be bound by those conditions.
G’s nephew was missing. L, who was servant of G, left his services to search for
the missing boy. Meanwhile G issued an advertisement offering reward of Rs.501
to anyone who might trace the boy. L found the boy and brought him home. He
did not get the reward and filed a suit against G. The court held that he acted in
ignorance of the offer and so he is not entitled to reward.
Lalman Shukla Vs. Gauri Dutt [(1913) 11 All LJ 489]
A offered to take a house on lease for 3 years at Rs.10,000 per annum if the
house was “put into thorough repair and drawing rooms handsomely
decorated according to the present style.” Held, the offer was too vague and
hence invalid.
Taylor Vs. Portington (1855) All ER 128

g) The special terms and conditions must be reasonable. What is reasonable is a question of fact. If
terms and conditions are unreasonable then the other party will not be bound by them.
9. An offer must not put the burden of acceptance on the Offeree: a man cannot say that if
acceptance is not communicated by a certain time the offer would be considered as accepted.
10. An offer may be made either by words or by conduct.
11. Offer must be made with a view to obtain the assent of the other: The offer must be made
with a view to obtaining the consent/assent of the Offeree. Thus a casual enquiry or a mere
statement of intention is not a proposal.
12. The offer must be made to some other person, but not to himself.
13. Offer is different from:
a) Invitation to offer.
b) Cross offer.
c) Counter offer.
d) Declaration of intention or an
announcement
Note: You will get detailed discussion on this concept in the next questions of this chapter itself.
Similar Question : Define an offer. Explain the rules of an offer. Hew an offer is different from an invitation
to offer (PM)
Ans: Refer above Question
(IMMEDIATELY REFER PRACTICAL QUESTION NO.6, 7, 17)
Q.No.2. Types of Offer.
Q.No.3. Write about Specific Offer & General Offer.
Specific / Special Offer:
1. When offer is made to a definite person, it is known as specific offer and such offer can be
accepted only by that specified person.
2. Offer to one particular person: Where an offer is made to one particular person, it can be
accepted by that person only.
3. Offer to a group of persons: Where an offer is made to a particular group of persons, it may be
accepted by any member of that group.
TYPES OF OFFER
SPECIAL OFFER COUNTER OFFER
GENERAL OFFER CROSS OFFER STANDING OFFER
P bought a steamer ticket. On its back certain conditions were printed. One of
the conditions excluded the liability of the company for loss, injury or delay to
the passenger or his luggage. There was no indication on the face of the
ticket that certain conditions were written on the back of it. P’s luggage lost on
the way because of the negligence of the company’s servants. The court held
that P was entitled to recover his loss from the company.
Henderson Vs. Stevenson

General Offer:
1. It is an offer made to the public in general and hence anyone can accept and do the desired act.
2. Section 8 of the Indian Contract Act, points out that performance of the conditions of a proposal is
an acceptance of the proposal.
3. Where an offer is made to the whole world, it can be accepted by anyone having its knowledge.
When the offer is accepted by a particular person, there is a contract between the offeror and that
particular person. If a large number of persons accept the offer, there are as many contracts as
the number of persons accepting the offer.
4. Where some reward is offered for giving some information, e.g. information about some lost
property, information about some thief, etc. acceptance can be made only by the first person who
gives such information.
(IMMEDIATELY REFER PRACTICAL QUESTION NO.1, 2, 8)
Q.No.4. Write about Cross Offers.
1. When two parties exchange identical offers in ignorance at the time of each other’s offer, the
offers are called cross offers.
2. There is no binding contract in such a case, as one’s offer cannot be construed as acceptance by
the other.
Q.No.5. Write about Counter Offer.
1. Counter offer means making a fresh offer instead of accepting the original offer. Acceptance of an
offer with a variation is not acceptance. It is simply a counter offer.
A company advertised to give a reward to anyone who is contacted by influenza
after using the medicine of the company for a certain period according to the
printed directions. Mrs. ‘X’ purchased the advertised medicine and contacted
influenza though using the medicine as per printed instructions. Mrs.’X’ claimed
for the reward. The claim was denied by the company on the ground that offer
was not made to Mrs.’X’ and also that she had not communicated her
acceptance to an offer. It was decided that she could recover the reward as she
had accepted the offer by complying with the terms of offer.
Carlill v. Carbolic Smoke Ball Co.
A offers by a letter to sell 100 tons of steel at Rs.1000 per
ton. On the same day B also writes to A offering to buy 100
tons of steel at Rs.1000 per ton. The two letters crossed
each other in post. B brought an action against A for the
supply of steel. He contended that a valid contract had been
created with A. Held, that there were only two cross offers
and either of the parties has not accepted. Hence, no
binding contract was created.
Tinn v. Hoffman
J offered to purchase 50 feet of leather from Z. In the meantime Z sold his
business to B. Therefore instead of Z, B supplied the leather to J. J refused to
accept the leather on the plea that his offer was open to Z only and B’s
acceptance does not carry any meaning. It was held that the offer had been
directed to Z personally and it could not be accepted by B.
Boulton Vs. Jones

2. When the Offeree offers to qualified acceptance of the offer subject to modifications and
variations in the terms of the original offer, he is said to have made a counter offer.
Effects of Counter Offer:
1. Counter offer amounts to rejection of the original offer.
2. Once a counter offer is made, the original offer is lapsed. An offer once rejected is dead.
3. Counter offer results in a new offer.
4. Acceptance of counter offer by the original offeror amounts to acceptance and a contract is
formed (on the basis of counter offer).
5. Sometimes offeree may change his mind and wants to accept the original offer. If the original
offeror wants to form a contract then he may accept this and a valid contract is formed on the
basis of fresh offer. But there is no rule that offeror must accept. This is so because when a
counter offer is made original offer comes to an end.
Examples:
‘A’ offers to sell his plot to ‘B’ for Rs.10 lakhs. ’B’ agrees to buy it for 8 lakhs. It amounts to
counter offer. It may result in the termination of the offer of ’A’. And if later on ‘B’ agrees to buy
the plot for Rs. 10 lakhs, ’A’ may refuse.
Note: Mere statement of enquiry is not a counter offer.
E.g.: M made an offer to sell iron to S at Rs.40,000 net cash per ton”. S replied asking whether
delivery could be within two months. M thereupon sold the iron to X, a third party. S had no
knowledge of the sale to X and informed M that he would accept on the proposed terms. M
contended that enquiry made by S had the effect of canceling the original offer. It was held that
the first reply by S was merely a request for information. It did not amount to counter offer.
Therefore, original offer will not lapse and it will continue. Therefore, M has done breach of
contract by selling iron to X.
Q.No.6. Write about Invitation to Offer.
Offer and Invitation to Offer:
1. An offer should be distinguished from an invitation to offer.
2. An offer is definite and capable of converting an intention into a contract. Where as an invitation to
an offer is only a circulation of information and it is an attempt to induce offers and precedes a
definite offer.
3. Acceptance of an invitation to an offer does not result in the contract and only an offer emerges in
the process of negotiation.
4. When a person advertises that he has stock of books to sell or houses to let, there is no offer to be
bound by any contract. Such advertisements are offers to negotiate i.e. offer to receive offers.
5. Does the person who made the statement intends to be bound by it as soon as it is accepted by
the other or he intends to do some further act, before he becomes bound by it? In the former
case, it amounts to an offer and in the latter case, it is an invitation to offer.
6. In order to ascertain whether a particular statement amounts to an ‘offer’ or an ‘invitation to offer’,
the test would be intention with which such statement is made.
7. When a person makes an invitation to offer, the purpose is not to obtain the assent of the other
person, but merely to circulate the information that he is willing to deal with.
8. Acceptance to an invitation to offer cannot give rise to a contract.

Possible Forms of ‘Invitation to Offer’:
1. Displaying goods for sale: Where goods, with a price tag attached, are displayed in a shop
window, it is not an offer by the shop, but it is merely an invitation by the shop to the public to
make an offer for the goods.
2. Price lists, catalogues: The issue of a tradesman’s circular or catalogue advertising goods for
sale is usually treated as mere attempt to induce offers and it is not an offer. The price list of
goods does not constitute an offer for sale of certain goods on the listed prices. It is an invitation
to offer.
3. Advertisement: Generally, an advertisement on a hoarding, a newspaper ‘display’, or a television
advertisement, etc. is not regarded as an offer. These are simply attempts to make the public
aware of what is available and cannot be treated as an offer. A recognised exception to this is a
general offer of reward to the public.
4. Declaration of intention: A declaration of intention, such as an advertisement to hold an auction,
does not amount to an offer. Likewise, an announcement of a beauty competition by a beauty
parlour or a scholarship examination by some college is not an offer.
5. Auctions: At an auction sale, the auctioneer’s request for bids is invitation to offer. Bids placed by
the bidders will be treated as offer. If the auctioneer accepts the offer, he will strike the table with his
hammer. Thus an auctioneer can withdraw any item from auction, before the fall of hammer.
6. Prospectus: A company which makes an offer to the public of new shares is treated as invitation
to offer. It invites members of the public to apply for the shares. The share applications put by the
general public will be treated as offer. The allotment of shares by the company is treated as
acceptance.
7. Tenders: If A asks number of tradesmen to put in tenders for supplying certain goods or services,
he is not making any offer. Consequently he is not bound to accept the lowest or any other
tender. The offer comes from the tradesmen in the form of tender or estimate.
8. Quotation of lowest price is not an offer.
(IMMEDIATELY REFER PRACTICAL QUESTION NO.3, 4, 5, 18)
H sent a telegram to F writing “will you sell your house? Telegraph lowest cash
price”. The defendant also replied by a telegram “Lowest price for the house,
Rs.10,000”. The plaintiff immediately sent a last telegram stating, “We agree to
buy your house for Rs.10,000 asked by you”. F refused to sell the property at
the price. H contended that F has quoted the minimum price, which should be
treated as offer, and he has accepted the offer. The court pointed out that in
their first telegram H has asked two questions, first about the willingness to sell
and second about the lowest price. The defendant answered only the second
question and gave the lowest price. They reserved their answer to first
question. Thus, they had made no offer. The court was of the opinion that the
mere statement of lowest price cannot be considered as offer. So, there is no
contract at all.
Harvey Vs. Facie
An auctioneer, N, advertised that a sale of office furniture would take place at a
particular place on a particular date. H saw the advertisement and travelled from
London to attend the sale. When he arrived, he came to know that the office
furniture was withdrawn from sale. He claimed the damages for loss of time and
expenses incurred in journey. It was held that the advertisement was mere
declaration of intention, not an offer. H was not entitled for compensation.
Harris v. Nickerson

Q.No.7. Define the term ‘Acceptance’. Discuss the Legal Provisions relating to its Communication
(M 12 -5M)
Meaning:
1. A proposal or offer is said to have been accepted when the person to whom the proposal is made
signifies his assent to the proposal to do or not to do something [Sec.2(b)].
2. Acceptance is an expression, by words or conduct, which clearly indicates that the person making
it, agrees to be bound by the terms of offer.
3. An acceptance is the manifestation by the offeree of his willingness to be bound by the terms of
the offer.
Essential Elements of Valid Acceptance (or) Rules Regarding Acceptance:
1. Acceptance must be absolute and unqualified (Sec 7(1)):
a) As per Sec.7 an acceptance is valid when it is absolute and unqualified and is expressed in
some usual and reasonable manner, unless the proposal prescribed the manner in which it is
to be accepted.
b) Also an acceptance with a variation is no acceptance. It is simply a counter proposal which
shall have to be accepted by the original proposer before a contract can be deemed to have
come into existence.
c) A counter proposal is the offer by the offeree and can result in a contract only if it is accepted
by the other party.
2. The acceptance must be expressed in some usual or reasonable manner (Sec.7(2)):
a) Where the mode of acceptance is prescribed in the proposal, it must be accepted in that
manner.
b) But if the proposer does not insist on the proposal being accepted in the manner prescribed
after it has been accepted otherwise, i.e., not in the prescribed manner, the proposer is
presumed to have consented to the acceptance.
c) If acceptance is not communicated according to the mode prescribed, it is called deviated
acceptance. Even in such a case acceptance is not invalid.
d) Law imposes a duty on the offeror to reject such acceptance within a reasonable time. If he
fails to do so, he becomes bound by the acceptance
E.g.: If the Offeror prescribes acceptance through messenger and offeree sends acceptance
by email, there is no acceptance of the offer if the offeror informs the offeree that the
acceptance is not according to the mode prescribed. But if the offeror fails to do so, it will be
presumed that he has accepted the acceptance and a valid contract will arise.
3. Acceptance must be given before the offer lapses or revoked: Acceptance can be given only
to an existing offer. When an offer terminates, it cannot be accepted.
4. An acceptance must be communicated to the offeror: It must further be remembered that an
acceptance must be communicated to the person who made the offer. The Offeree should do
something to signify his assent i.e. to communicate his acceptance.
Acceptance can be communicated in any of the following modes:
a) By words spoken, b) By words written, c) By conduct.
5. Acceptance by conduct: The assent means that acceptance has been signified either in writing
or by words of mouth or by performance of some act. Therefore, when, a person performs the act
intended by the proposer as the consideration for the promise offered by him, the performance of
the act constitutes acceptance.

6. Mere silence is not acceptance: The acceptance of an offer cannot be implied from the silence
of the Offeree or his failure to answer, unless the Offeree has in any previous conduct indicated
that his silence is the evidence of acceptance.
E.g.: ’A’ subscribed for the weekly magazine for one year. Even after expiry of his subscription,
the magazine company continued to send him magazine for five years. And also ‘A’ continued to
use the magazine but denied to pay the bills sent to him. ’A’ would be liable to pay as his
continued use of the magazine was his acceptance of the offer.
7. Where the Offeree (having reasonable opportunity to reject the offered goods or services)
enjoys or avails the benefits of goods or services, it will be regarded as acceptance.
8. Agreement to agree in future is not valid.
9. Acceptance must be given by the party to whom the offer is made. Acceptance can be given
by the offeree or his duly authorised agent.
10. Time: Acceptance must be given within the specified time limit, if any, and if no time is stipulated,
acceptance must be given within the reasonable time and before the offer lapses.
11. Acceptance cannot precede an offer. Acceptance must be given after receiving the offer. It
should not precede the offer.
12. Acceptance cannot be made in ignorance of offer: An acceptance made by the intended
Offeree without the knowledge that an offer has been made to him cannot be deemed as an
acceptance thereto. (Bhagwandas v.Girdharilal). The rule is that acceptance follows the offer.
13. A mere mental acceptance is not considered as acceptance in the eyes of law.
E.g.: A draft agreement relating to the supply of coal was sent to the manager of a Railway
company for his approval. The manager put the words ‘approved’ on the agreement but the draft
remained in his table. Held, there was no contract because there is no communication.
14. Acceptance subject to contract is no acceptance: If the acceptance has been given “subject
to contract” or subject to approval by certain persons or by the use of similar words, it has no
effect at all. Such an acceptance will not create binding contract until a formal contract is prepared
and signed by all the parties.
Similar Question:
1. B agrees to purchase the car from A as per his proposal, subject to availability of valid registration
certificate for the car. (RTP M 14)
Ans: Refer point no 14.
2. Explain in brief the rules relating to acceptance of an offer under the provisions of the Indian
contract Act., 1872.
Ans: Refer above answer
(IMMEDIATELY REFER PRACTICAL QUESTION NO.9, 10, 11, 12)
Q.No.8. How an Offer gets Terminated?
An offer may terminate by the operation of law or by the act of the parties. The Act under section 6
states the circumstances when an offer comes to an end. But these are not exhaustive.
1. Revocation [Sec.6(1)]: A proposal is revoked by the communication of notice of revocation by
the proposer to the other party. A proposal may be revoked at any time before the proposal is
accepted.
2. Lapse of time [Sec 6(2)]: A proposal is revoked by the lapse of time prescribed in such proposal.
If no time is prescribed in the offer, the offer comes to an end after the lapse of reasonable time.
3. Failure of acceptor to fulfill the condition precedent to acceptance [Sec.6(3)]: A proposal is
revoked when the acceptor fails to fulfill a condition precedent to the acceptance of the proposal.

E.g.: A, a seller agrees to sell his house subject to the condition that B, a buyer, pays the agreed
price before a certain date. B fails to fulfill that condition. Hence the offer stands revoked.
4. Death or insanity of the proposer [Sec.6(4)]:
a) A proposal is revoked by the death or insanity of the proposer, if the fact of his death or
insanity comes to the knowledge of the acceptor before acceptance.
b) If the offeree does not know that the offeror has died or gone insane and gives his
acceptance, it is a valid acceptance in the eyes of law. This will result in a valid contract and
legal representatives of the deceased offeror shall be bound by the contract.
5. Death of Offeree before acceptance, terminates the offer.
6. Rejection: An offeree may reject the offer. Once he rejects, he cannot subsequently accept it.
Rejection of proposal is entirely different from revocation.
Rejection may be of two types:
Express rejection: The offeree may reject the offer expressly, i.e. by words written or spoken.
Express rejection is effective only when notice of rejection reaches the offeror.
Implied rejection: Rejection of offer is implied by law:
a)Where the offeree makes a counter offer.
b)Where the offeree gives a conditional acceptance.
7. Counter offer: A counter offer proposing different terms terminates the original offer.
8. Failure to accept according to the mode prescribed: Offer is terminated if the offeree fails to
accept it according to the mode prescribed by the offeror.
9. Subsequent illegality or destruction of the subject matter: An offer lapses if it subsequently
becomes illegal or when the subject matter of an offer gets destroyed.
Q.No.9. State the Legal Provisions relating to Tenders.
Tender: A tender is an offer made in response to an invitation to offer (i.e. notice inviting tenders) for
supply of goods or services or to execute certain work at a particular price. The persons filling up the
tenders are called as tenderors or bidders or offerors.
A tender can be:
Specific or Definite: Where the offer is to supply a definite quantity of goods it is called specific or
definite tender. The party inviting the tenders may either accept or reject it. When a particular tender
is accepted (generally the lowest one) it creates a contract between the parties.
Standing Offer or Tender:
1. An offer is allowed to remain open for acceptance over a period of time is known as a standing,
open or continuing offer. Tender for supply of goods is a kind of standing offer.
2. Offer to supply goods periodically or in accordance with the requirements of the Offeree is a
standing tender.
3. If such tender is approved, it becomes a standing or open or continuing offer.
4. As and when an order is placed (on the basis of standing offer), it amounts to acceptance. Each
order creates a new binding contract between the parties.
5. Thus, there are as many contracts as number of orders.
E.g.: A Railway Co. invited tenders for the supply of stores. W made a tender to supply the
company for 12 months with such quantities of specified articles as the company may order from
time to time. The company accepted the tender and placed the orders. W executed the orders as
placed from time to time but later refused to execute a particular order.

Held W was bound to supply the goods as per the terms of the tender.
6. It is to be noted that if the offeree gives no order or fails to order the full quantity of goods set out
in a tender, there is no breach of contract.
Revocation or Withdrawal of a Tender: A tenderer can withdraw his tender before its final
acceptance by a work or supply order. This right of withdrawal shall not be affected even if there is a
clause in the tender restricting his right to withdraw.
But the tender is irrevocable:
- If the tenderer has promised not to withdraw it, on some consideration or
- Where there is a statutory prohibition against withdrawal.
Note:
Tender = bid = offer
Tenderer = bidder = offeror
Q.No.10. When is the Communication of an Offer and Acceptance Complete?
Communication:
1. When the contracting parties are face to face, there is no problem of communication, because
there is instantaneous communication of offer and acceptance. In such a case the question of
revocation does not arise since the offer and its acceptance are made instantly.
2. Difficulty arises when the contracting parties are at a distance from one another and they utilise
the services of the post office or telephone. In such cases it is very much relevant for us to know
the exact time when the offer or acceptance is made or complete.
Acceptance Over Telephone or Telex or Fax:
1. When an offer is made of instantaneous communication like telex, telephone, fax or through e-
mail, the contract is only complete when the acceptance is received by the Offeror and the
contract is made at the place where the acceptance is received. (Entores Ltd. v. Miles Far East
Corporation)
2. In case of telephone/fax etc., it is presumed that there is instantaneous communication. So, there
is no scope for revocation.
3. But while communicating, if the equipment goes out of order or some other disturbance occurs,
due to which the message is not conveyed properly, the communication is not treated as
complete.
4. Where the acceptance is given by post, the place where the letter is posted is the place of
contract.
5. When the parties negotiate a contract through mail (i.e. post) or by telegram, there is considerable
time lag between putting the message in the course of transmission by one party and its receipt
by the other party.
6. In such cases, it is very important to decide the precise moment when communication is
completed.
Communication of Offer - When Complete?
1. The communication of an offer is complete when it comes to the knowledge of the person to
whom it is made (Sec.4).
2. An offer may be communicated either by words spoken or written or it may be inferred from the
conduct of the parties.
3. When a proposal is made by post its communication will be complete when the letter containing
the proposal reaches the persons to whom it is made.
Copyrights Reserved

E.g.: A makes proposal to B to sell his house for Rs.two lakhs. The letter is posted on 10th
March.
This letter reaches B on 12th instant. The offer is said to have been communicated on 12th, when
B receives the letter.
Communication of Acceptance when complete?
1. Communication of an acceptance is complete:When a proposal is accepted by a letter sent by
the post the communication of acceptance will be complete
as against the proposer when the letter of acceptance is posted and
as against the acceptor when the letter reaches the proposer.
2. Thus, the offeror becomes bound by the acceptance as soon as the letter of acceptance is posted
by the acceptor.
For the acceptor, the communication of acceptance is complete, when it comes to the knowledge of
the offeror.
3. Acceptance is complete as against the offeror as soon as the letter of acceptance is posted.
The contract is complete even if the letter of acceptance goes away or is lost through an accident
in the post.
But in order to bind the offeror, it is important that the letter of acceptance is correctly addressed,
sufficiently stamped and posted.
If it is not correctly addressed and sufficiently stamped, the communication of acceptance is not
complete.
Ex: A proposes, by a letter to sell his house to B at a certain price. The letter is posted on 1st
June at 10.00 a.m. It reaches to B on 3rd June at 3.00 p.m. B accepts A's proposal, by a letter
sent by post on 13th instant. The letter reaches A on 15th instant. The communication of the
acceptance is complete as against A when the letter is posted i.e. on 13th and as against B it is
complete when the letter is received by A i.e. on 15th.
Continuing with the above example, on 5th June at 2.00 p.m. B hands over the letter of
acceptance to his peon for posting. Peon actually posted the letter at 2.30 p.m. The letter
reaches A on 8th June at 11.00 a.m. Communication of acceptance is complete:
As against A, the offeror - when letter is actually posted at 2.30 p.m. on 5th June (not at 2.00
p.m. when it was handed over to the peon, since the letter is said to be out of the power of the
acceptor only when the letter is actually posted).
As against B, the acceptor - On 8th June at 11.00 a.m. when letter is received by A.
4. Position in English Law: In English Law, communication of acceptance as against the offeror
and offeree completes with the posting of letter of acceptance.
Q.No.11. Revocation of Offer.
Revocation means ‘taking back’ or ‘recalling’ or ‘withdrawal’.
When an Offer may be Revoked?
1. A proposal may be revoked at any time before the communication of its acceptance is complete
as against the proposer, but not afterwards. [Sec. 5]
2. In simple words it can be said that an offer can be revoked before its acceptance. But the
communication of revocation of offer should reach offeree before he posts the letter of
acceptance.
3. Ordinarily, the offeror can revoke his offer before it is accepted. If he does so, the offeree cannot
create a contract by accepting the revoked offer.

E.g.: The bidder at an auction sale may withdraw (revoke) his bid (offer) before it is accepted by
the auctioneer by fall of hammer.
4. An offer may be revoked by the offeror before its acceptance, even though he had originally
agreed to hold it open for a definite period of time. So long as it is a mere offer, it can be
withdrawn whenever the offeror desires.
E.g.: X offered to sell 50 bales of cotton at a certain price and promised to keep it open for
acceptance by Y till 6 pm of that day. Before that time X sold them to Z. Y accepted before 6 p.m.,
but after the revocation by X. In this case it was held that the offer was already revoked.
5. If the Offeror has agreed to keep his offer open for a certain period he can revoke it before the
expiry of that period only:
• If the offer is not accepted in the meantime.
• If there is no consideration for keeping the offer open.
Ex T offered, by a letter on October 1, to sell goods to B in New York. B received the offer on 11th
and immediately telegraphed his acceptance. On 18th, T wrote a letter revoking his offer. The
letter was received by B on 20th. Held, the revocation was of no effect until it reached B. A
contract was made on 11th October when B accepted the offer.
Communication of Revocation of offer - when complete? Under Sec.4, the communication of
revocation is complete:
1. As against the person who makes it, (Proposer) - when it is put into a course of transmission to
the person to whom it is made (Proposee) so as to be out of the power of the person who makes
it;
2. As against the person to whom it is made (Proposee/Acceptor) - when it comes to his
knowledge.
Ex: A proposes by a letter to sell a house to B at a certain price. The letter is posted on 15th may.
It reaches B on 19th may. A revokes his offer by telegram on 18th may. The telegram reaches B
on 20th may. The revocation is complete as against A when the telegram is dispatched i.e. on
18th. It is complete as against B when he receives it i.e. on 20th.
Notes:
1. Revocation must always be expressed.
2. Revocation must move from the offeror himself or a duly authorised agent.
3. Notice of revocation of a general offer must be given through the same channel by which the
original offer was made.
4. Offer cannot be revoked even if the letter of acceptance is lost or delayed in transit.
Q.No.12. Revocation of Acceptance.
When an Acceptance may be Revoked?
1. An acceptance may be revoked at any time before the communication of acceptance is complete
as against the acceptor, but not afterwards. [Sec. 5]
2. Thus an acceptance can be revoked any time before the letter of acceptance reaches the offeror.
Once the acceptance comes to the knowledge of the offeror, it cannot be revoked.
3. Under Sec.5, a proposal may be revoked at any time, before the communication of its acceptance
is complete as against the proposer.
An acceptance may be revoked at any time before the communication of acceptance is complete
as against the acceptor.
E.g.: A proposes, by a letter sent by post, to 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. Whereas B may revoke his acceptance at any time before or at
the moment when the letter communicating it reaches A, but not afterwards.

4. An acceptance to an offer must be made before that offer lapses or is revoked.
5. The law relating to the revocation of offer is the same in India as in England, but the law relating
to the revocation of acceptance is different.
6. In English law, the moment a person express his acceptance of an offer, that moment the contract
is concluded, and such an acceptance becomes irrevocable, whether it is made orally or through
the post. In Indian law, the position is different as regards contract through post.
7. Contract through post – As acceptance, in English law, cannot be revoked, so that once the
letter of acceptance is properly posted the contract is concluded. In Indian law, the acceptor can
revoke his acceptance any time before the letter of acceptance reaches the offeror, if the
revocation telegram arrives between or at the same time with the letter of acceptance, the
revocation is absolute.
8. Contract over Telephone – A contract can be made over telephone. The rules regarding offer
and acceptance as well as their communication by telephone or telex are the same as for the
contract made by the mutual meeting of the parties. The contract is formed as soon as the offer is
accepted but the offeree must make it sure that his acceptance is received by the offeror,
otherwise there will be no contract, as communication of acceptance is not complete. If telephone
unexpectedly goes dead during conversation, the acceptor must confirm again that the words of
acceptance were duly heard by the offeror.
(IMMEDIATELY REFER PRACTICAL QUESTION NO.14, 15)
MISCELLANEOUS
Acceptance is "to an offer what a lighted match is to a train of gunpowder. It produces something
which cannot be recalled or undone". – William Anson
Q.No.1. “Good Girl” Soap Co. advertised that it would give a reward of Rs. 1,000 who developed skin
disease after using “Good Girl” soap of the company for a certain period according to the printed
directions. Miss Rakhi purchased the advertised “Good Girl” soap and developed skin disease in
spite of using this soap according to the printed instructions. She claimed reward of Rs. 1,000. The
company refused the reward on the ground that offer was not made to her and that in any case she
had not communicated her acceptance of the offer.
Decide whether Miss Rakhi can claim the reward or not. Refer the relevant case law, if any,
Facts of the case: Good Girl soap Co. advertised that it would give a reward of Rs. 1,000 who
developed skin disease after using their soap. Miss. Rakhi purchased the same and used it. She
developed the disease after using it. Later the company refuses to pay award to her that she had not
communicated her acceptance to them.
Case Law: Carlill v. Carbolic Smoke Ball Co.
Provision & Analysis: Advertisement issued by the company is an offer made to the public in
general and hence any one can accept and do the desired act. Where a general offer is of continuing
nature, it will be open for acceptance to any number of persons until it is retracted. The Contract Act
posits that performance of the conditions of a proposal is an acceptance of the proposal. So there is
no need of actual and formal offer and the communication of an acceptance of an offer. In this case
Miss. Rakhi has received an offer through general offer. Therefore acceptance for such offer is not
necessary.
Conclusion: Yes, Miss Rakhi can claim the reward of Rs.1, 000.
Q.No.2. X advertises in a news paper that he would pay Rs. 1,00,000 to anyone who traces his missing
son. Y traced that boy and claimed the amount of reward. State whether Y is entitled to receive the
amount of reward if (a) he did not know about the reward, (b) if he knows about the reward?
PRACTICAL QUESTIONS
Copyrights Reserved

Facts of the case: X in order to trace his missing son, advertised in the news paper a reward of
Rs.1,00,000. Y traced the boy and claimed the amount.
Provisions and Analysis: The offer must be capable of creating legal relation. It may be express or
implied. A proposal is said to have been accepted when the person to whom it is made signifies his
assent to the proposal to do or not to do something. An offer made by the intended offeree without
the knowledge that an offer has made to him cannot be deemed as an acceptance thereto.
Conclusion:
a) Y is not entitled to receive the amount of reward because there can be no valid acceptance without
the knowledge of the offer. [Leading case: Lalman Shukla v. Gauri Dutt].
b) Y is entitled to receive the amount of reward because Y has accepted the general offer by tracing
the missing son. [HarBhajan Lal v. Harcharan Lal]
Q.No.3. X, a broker of Mumbai wrote to Y, a merchant of Ghaziabad stating the terms on which he is
willing to do business. Is the letter a valid offer by X to Y?
Facts of the case: X, a broker of Mumbai wrote to Y, a merchant of Ghaziabad stating the terms on
which he is willing to do business.
Provisions and Analysis: An offer is definite and capable of converting an intention into contract. A
mere intention cannot be said as an offer. [Devidatt v. Shriram]
Conclusion: The letter was a mere statement of intention and not an offer at all.
Q.No.4. A notice that the goods stated in the notice will be sold by tender. Is the notice a valid offer to
sell?
Facts of the case: A notice that the goods stated in the notice will be sold by tender.
Case law: Spencer v. Harding
Provisions and Analysis: An offer is definite and capable of converting an intention into contract. A
mere intention cannot be said as an offer.
Conclusion: The notice was mere a statement of intention and not an offer to sell.
Q.No.5. X, gave an advertisement in a newspaper that a sale of office furniture by auction will be held
at 2 P.M. On 9th August, 1997 at ‘Pragati Maidan, Stall No. 420, New Delhi’. Y from Mumbai reached
New Delhi on the appointed date and time but X had cancelled the auction sale. Advise Y.
Facts of the case: X, gave an advertisement in a newspaper that a sale of furniture by auction at
New Delhi. Y came to attend the auction sale, later which was cancelled.
Provisions and Analysis: In the case of invitation to offer the person sending out invitation does not
make an offer but only invites the other parties to make an offer. An advertisement for sale of goods
by auction, quotations, catalogues of prices or display of goods at show room with price tag etc. is
invitation of offer rather than offer. [Leading case: Harris v.Nickerson].
Conclusion: Y cannot file a suit against X for his loss of time and expenses because the advertisement
was merely an invitation to offer and not an offer to sell.
Q.No.6. X delivered a coat to Y, a dry cleaner for dry cleaning and took the receipt. On the back of
the receipt, certain conditions were printed in English language. One of the conditions printed on the
back was ”the liability of the dry cleaner Company shall be limited to the 50% of the cost of goods.” X
never looked at the back of the receipt. X’s coat was lost and X claimed the actual value of the coat.
Discuss the legal position in each of the following alternative cases:
Case (a): If there was nothing on the face of the receipt to draw the attention to the conditions printed
on the back side and X was a graduate in English.

Case (b): If on the face of the receipt, the words ‘See Back’ were printed in English but X did not read it.
Facts of the case: X delivered Y, his coat for dry cleaning and took the receipt. There were certain
conditions written on back of the receipt which were overlooked by X. Later on X’s coat was lost.
Provisions and Analysis: The party delivering the document should have given reasonable notice of
the special terms and conditions. Words like See Back, Please Turnover etc. are indicative of a
reasonable notice to the acceptor. It shall be binding even though the acceptor did not read or
understand the same. Moreover the acceptor will not incur any contractual obligation, if the document
is printed or delivered to him in such condition that, it does not give reasonable notice on its face that
it contains certain special conditions.
[
Case law: Handerson v. Stevenson.
Conclusion:
Case (a): X was entitled to claim compensation for the loss of his coat because there was no
indication on the face of the ticket to draw his attention to the special terms printed on the back of the
tickets.
Case (b): X was entitled to claim only 50% of the cost of the coat because there was sufficient notice
on the face of the ticket as to the existence of the conditions.
Q.No.7. X and Mrs. X hired a room in a hotel for a week. When they entered the room, they found a
notice on the wall disclaiming the owner’s liability for damages, loss or theft of articles. Some of their
items were stolen. Discuss the legal position.
Facts of the case: X and Mrs. X hired a room in a hotel for a week. They found a notice in the room
stating the owner’s liability for the lost items.
Provisions and Analysis: The party delivering the document should have given reasonable notice of
the special terms and conditions. Words like See Back, Please Turnover etc. are indicative of a
reasonable notice to the acceptor. It shall be binding even though the acceptor did not read or
understand the same. Moreover acceptor is not bound, when the conditions are contained in a
document that is delivered after the contract is complete.
Case law: Leading case: Olley vs. Marlborough Court Ltd.
Conclusion: The owner of the hotel was liable because the special terms (i.e. notice) were
communicated after the formation of the contract.
Q.No.8. X sold his business to Y but this fact was not known to an old customer Z. Z placed an order
for certain goods to X by name. Y supplied the goods to Z. Is there a valid contract?
Facts of the case: X sold his business to Y, which was not known to his old customer Z, placed the
order in the name of X.
Provisions and Analysis: Offer can be specific or general. An offer is said to be Specific when it is
addressed to a definite person or persons. Such offer can be accepted only by the person or persons
to whom it is made. A general offer on the other hand is addressed to public in large and may be
accepted by anybody fulfilling the terms and conditions.
Case law: Boulton v. Jones.
Conclusion: There was no contract at all between Y and Z because Z’s offer was a specific offer to X
and X alone could accept it.
Q.No.9. X offered to sell his car for Rs. 1,00,000 to Y. Y replies “I will pay Rs. 90,000 for it”. X refuses
to sell at this price. Y then attempts the original but X refuses to sell his car. Discuss the legal
position.
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