Offer and acceptance

Offer/proposal (Section 2(a))

 The entire process of entering into a contract begins with the
proposal or an offer made by one party to another. The proposal
must be accepted to enter into an agreement.
 According to the Indian Contract Act 1872, proposal is defined
in Section 2(a) as “when one person will signify to another person
his willingness to do or not do something (abstain) with a view to
obtain the assent of such person to such an act or abstinence, he is
said to make a proposal or an offer.”

Features of a valid offer

The person making the offer/proposal is referred to as the “promiser” or the
“offeror”. And the person who accepts an offer is referred to as “promisee” or
the “acceptor”.

 The offeror must express his willingness to do or abstain from doing

an act. Only willingness is not adequate. Or just an urge to do
something or not to do anything will not be an offer.
 An offer can either be positive or negative. It can be a promise to do
some act, and can also be a promise to abstain from doing any
act/service. Both are valid offers.

The element of a valid offer

Here are some essentials which make the offer valid:

There must be two parties

There have to be at least two parties: a person making the proposal and the
other person agreeing to it. All the persons are included i.e, Legal persons as
well as artificial persons.

Every proposal must be communicated

Communication of the proposal is mandatory. An offer is valid if it is
conveyed to the offeree. The communication can either be expressed or
implied. It can be communicated by terms such as word of mouth,
messenger, telegram, etc. Section 4 of the Indian Contract Act says that the
communication of a proposal is complete when it comes to the awareness of
the person to whom it is made.

Example
‘A’ proposes to sell a car to ‘B’ at a certain price. Once ‘B’ receives the letter,
the proposal communication is complete.

It must create legal relations

An offer must be such that when accepted it will result in a valid contract. A
mere social invitation cannot be regarded as an offer, because if such an
invitation is accepted it will not give rise to any legal relationship.

Example
‘A’ invited ‘B’ to dinner and ‘B’ accepted the invitation. It is a mere social
invitation. And ‘A’ will not be liable if he fails to provide dinner to B.

It must be certain and definite

The terms of the offer must be certain and clear in order to create a valid
contract, it must not be ambiguous.

It may be specific or general

The specific offer is an offer that is accepted by any specific or particular
person or by any group to whom it is made. Whereas, The general offers are
accepted by any person.

Classification of offer
An offer can be of many types, ranging across the spectrum. There are
basically 7 kinds of offers:

 Express offer
 Implied offer
 General offer
 Specific Offer
 Cross Offer
  Counter Offer
 Standing Offer

Express offer and implied offer (Section 9)

Section 9 of The ICA defines both of them as: In so far as the proposal or
acceptance of any promise is made in words, the promise is said to be
expressed. In so far as such a proposal or acceptance is made otherwise than
in words, the promise is said to be implied.

Therefore, any offer that is made with words, it may be regarded as express.
Any promise that is made otherwise than in words is implied. A bid at an
auction is an example of an Implied offer. A case in this regard is Upton-on-
Severn RDC v. Powell, wherein the defendant called a fire brigade
assuming that those services would be free to him, however it was found that
his Farm did not come under that of Upton. The court held that the truth of
the matter is that the Defendant wanted the services of Upton, he asked for
the services of Upton and in response to that they offered their services and
they were rendered on an implied promise to pay for them.

In Ramji Dayawala & Sons (p) Ltd v. Invest Import, a case between an
Indian and Yugoslavian party the notice for revocation of an arbitration clause
in the contract between the parties was made by the Indian party, to which
the other party gave no reply. It was held that this would amount to an
implied acceptance i.e.- the arbitration clause was deleted from the contract,
and a suit would lie in the court of law. Similarly entering into an omnibus
also amounts to implied acceptance, same as consuming edibles at a self-
service restaurant. Therefore in simpler terms a contract that is entered into
because of actions on the offerors part, may be referred to as an implied
offer, any contract entered into otherwise is an express offer.

General offer
A General Offer is an offer that is made to the world at large. The genesis of a
General Offer came about from the Landmark case of Carlill v. Carbolic
Smoke Ball Co. A company by the name Carbolic Smoke Ball offered
through an Advertisement to pay 100 Pounds to anyone who would contract
increasing epidemic Influenza, colds or any disease caused by cold after
taking its Medicine according to the prescribed instructions. It was also added
that 1000 Pounds have been deposited in Alliance bank showing our sincerity
in the matter. One customer Mrs Carlill used the medicine and still contracted
Influenza and hence sued the company for the reward. The Defendants gave
the argument that the offer was not made with an intention to enter into a
legally binding agreement, rather was only to Puff the sales of the company.
Moreover, they also contended that an offer needs to be made to a specific
person, and here the offer was not to any specific person and hence they are
not obliged to the Plaintiff.
Setting aside the arguments of the Defendant, the bench stated that in cases
of such offers i.e- general offers, there is no need for communication of
acceptance, anyone who performs the conditions of the contract is said to
have communicated his/her acceptance, and moreover, the money deposited
by the Defendant in Alliance Bank clearly shows that they intended to create
a legally binding relationship. Hence the Plaintiff was awarded with the
amount. An Indian authority in this regard is Lalman Shukla v. Gauri
Dutt, wherein a servant was sent by his master to trace his missing nephew.
In the meanwhile, he also announced a reward for anyone finding his
nephew, this in itself is an example of an offer that is made to the world at
large and hence a General Offer.

Valid acceptance based on fulfillment of condition

This concept has been given statutory authority under section 8 of the ICA:

Performance of the conditions of a proposal, or the acceptance of any

consideration for a reciprocal promise which may be offered with a proposal,
is an acceptance of the proposal.

This section was applied by YEARS CJ of Allahabad high court in the case
of Har Bhajan Lal v. Har Charan Lal, wherein the father of a young boy
who ran from home issued a pamphlet for a reward for anyone who would
find him. The Plaintiff found him at the railway station and sent a Telegram to
his father. The Court held that the handbill was an offer that was made to the
world at large and anyone who fulfilled the conditions is deemed to have
accepted it. In the State of Bihar v. Bengal Chemical and
Pharmaceutical Works LTD, the Patna HC held that where the acceptance
consists of an act, e.g- dispatching some goods, the rule that there shall be
no communication of acceptance will come into play.

General offer of continuing nature

When a general offer is of continuing nature, like it was in a carbolic smoke
ball case, it can be accepted by a number of people till it is retracted.
However, when a similar offer requires information regarding a missing thing,
it is closed as soon as the first information comes in.

Specific offer
A Specific offer is an offer that is made to a specific or ascertained person,
this type of offer can only be accepted by the person to whom it is made. This
concept was seen briefly in the case of Boulton v. Jones, wherein the
Plaintiff had taken the business of one Brocklehurst, the defendant used to
have business with Brocklehurst and not knowing about the change in
ownership of business, sent him an order for certain goods. The Defendant
came to know about the change only after receiving an invoice, at which
point he had already consumed the goods. The Defendant refused to pay the
price, as he had a set off against the original owner, for which the plaintiff
sued him.

The Judges gave a unanimous judgement holding the defendant not liable.
Pollock CB held that the rule of law is clear, if you intend to contract with A, B
cannot substitute himself as A without your consent and to your
disadvantage. It was also held that whenever a person makes a contract with
a specific personality, a specific party, so to say, for writing a book, for
painting a picture or for any personal service or if there is any set off due
from any party, no one has the authority to come in and maintain that he is
the party contracted with.

Cross offer
When two parties make an identical offer to each other, in ignorance to each
other’s offer, they are said to make cross offers. Cross offers are not valid
offers. For example- if A makes an offer to sell his car for 7 lakhs to B and B
in ignorance of that makes an offer to buy the same car for 7 Lakhs, they are
said to make a cross offer, and there is no acceptance in this case, hence it
cannot be a mutual acceptance.

Basic essentials of a cross offer

1. Same offer to one another- When the offeror makes an offer to the
offeree and the offeree without prior knowledge makes the same
offer to the offeror, then both the object and the party remain the
same.
2. Offer must be made in ignorance of each other- The two parties
must make their offer in ignorance of each other.
An important case in this aspect is the English case of Tinn v. Hoffman, the
defendant wrote to the complainant an offer to sell him 800 tons of iron at
69s per ton, at the same time the complainant also wrote to the defendant an
offer to buy the iron at similar terms. The issue in this case was that, was
there any contract between the parties, and would simultaneous offers be a
valid acceptance. The court held that these were cross offers that were made
simultaneously without knowledge of one another and would not bind the
parties.

Here it is imperative to deduce that for a valid contract to be formed there

needs to be an offer and acceptance of the same, whereas in a cross offer
there is no acceptance, but only simultaneous offers being and therefore a
cross offer will not lead to the formation of a contract.

Counter offer
When the offeree offers a qualified acceptance of the offer subject to
modifications and variations in terms of the original offer, he is said to have
made a counter offer. A counter offer is a rejection of the original offer. An
example of this would be if A offers B a car for 10 Lakhs, B agrees to buy for
8 Lakhs, this amounts to a counter offer and it would mean a rejection of the
original offer. Later on, if B agrees to buy for 10 Lakhs, A may refuse. Sir
Jenkins CJ in Haji Mohd Haji Jiva v. Spinner, held that any departure from
original offer vitiates acceptance. In other words, an acceptance with a
variation is not acceptance, it is simply a counter proposal which must be
accepted by the original offeror, for it to formulate into a contract.

The Bombay High court gave this decision based upon the landmark
judgement of Hyde v. Wrench, in which an offer to sell a farm for 1000
Pounds was rejected by the Plaintiff, who offered 950 for it. Subsequently the
Plaintiff gave an acceptance to the original offer. Holding that the Defendant
was not bound by a contract, the court said that the Plaintiff accepted the
original offer of buying the farm at the price of 1000 pounds, it would have
been a completely valid contract , however he gave a counter proposal to it,
thus rejecting the original offer.

Partial acceptance
Counter offer also includes within its contours Partial acceptance, meaning
that a party to the contract cannot agree to those conditions of the
agreement that favour him and reject the rest, the acceptance should be of
the complete agreement i.e.- all its parts. In Ramanbhai M. Nilkanth v.
Ghashiram Ladli Prasad, the plaintiff made an application for certain
shares in a company with the underlying condition that he would be made
the cashier in its new branch. The Company did not comply with this and
hence the suit. The court held that the Petitioners application for shares was
condition on him being made the cashier and that he would have never
applied for the shares had there been no such condition.

Acceptance of a counter proposal

In Hargopal v. People’s Bank of Northern India LTD, an application for
shares was made on a conditional undertaking by the bank that the applicant
would be made the director of the new branch. The shares were allotted to
him without fulfilling the condition. The applicant did not say anything and
took his dividends, a subsequent suit by him failed as the court held that he
through his conduct had waived the condition. When a counter proposal is
accepted the contract arises in terms of the counter proposal and
not in terms of the original contract.

Standing offer
An Offer which remains open for acceptance over a period of time is called a
standing offer. Tenders that are invited for supply of goods is a kind of
Standing Offer. In Percival Ltd. V. London County Council Asylums and
Mental deficiency Committee, the Plaintiff advertised for tenders for
supply of goods. The defendant took the tender in which he had to supply to
the company various special articles for a period of 12 months. In-between
this the Defendant didn’t supply for a particular consignment. The Court held
that the Tender was a standing offer that was to be converted into a series of
contracts by the subsequent acts of the company and that an order
prevented the possibility of revocation, hence the company succeeded in an
action for breach of contract.

Difference between an offer and Invitation to offer

Although Invitation to Offer is not a type of offer per se, it is imperative to
distinguish both to even construe what an actual offer is. An invitation to
offer is an offer to negotiate, an offer to receive offers, offers to chauffeur. An
offer is a final expression of willingness to get into a contract upon those
following terms. The concept of Invitation to offer was explained in the Privy
Council case of Harvey v. Facey, the Plaintiffs in this asked two questions
from the defendant i.e.- Would you sell me your Bumper Hall pen , telegram
me the lowest price? , the Defendant only gave the answer to the latter
question , post which he refused to sell. The Court held that the defendant
was not to sell as he had only answered the second question and reserved
the same for his first question. Thus, this clearly shows the distinction
between an offer and invitation to offer.

In Adikanda Biswal v. Bhubaneswar Development Authority, when a

development authority made an announcement for allotment of plots on first
come first serve basis on payment of full consideration. An application
against this with full consideration was only considered to be an offer, as the
Development authority only gave an invitation to offer, and the offer can only
be formalized into a contract when it is accepted by the development
authority.

Rules regarding display of goods in shops

In Pharmaceutical Society of Great Britain v. Boots Cash Chemists
Southern Ltd., lord GODDARD CJ, said that it would be wrong to say that a
shopkeeper intends to sell everything that is displayed in his shop. Meaning
that the customer makes an offer, to which the shopkeeper has the discretion
to accept or deny. The shopkeeper may say that he doesn’t have enough
stock of that good and therefore may not sell. Similarly, a bankers catalogue
of charges is also not an offer, the auction held by a person is also only an
invitation to offer and he may not be liable for the transportation costs that
people may have to pay to come to the place of auction, in case he cancels
at the end moment.

Difference between general offer and specific

offer
 General Offer Specific Offer

General Offer is made to the whole A specific Offer is made to some specific
world at large. person.

A general offer can be considered by A specific offer can be accepted by only a

any person. specific person.

Lapses and revocation of an offer

 An offer lapses after a defined or reasonable time.
 An offer lapse by not being accepted in the specified mode
 An offer lapses by rejection.
 An offer lapses by the offeror or the offeror’s death or insanity until
acceptance.
 An offer lapses by revocation before acceptance.
 An offer lapses by subsequent illegality or destruction of the subject
matter.

When communication is complete

 Communication of offer (section 4)
The communication of the offer is complete when it comes to the knowledge
of the person to whom it is made.

Time of revocation of an offer

 Revocation of the offer (Section 4)
A proposal can be revoked at any time before the communication of its
acceptance is complete as against the proposer but not afterward.

Revocation of the offer by the offeror

The offeror can withdraw his offer before it is accepted “the bidder can
withdraw (revoke) his offer at an auction sale before being accepted by any
auctioneer using any of the customary methods.

Example
‘A’ agreed to sell the property to ‘B’ by a written document which stated “this
offer to be left over until Friday 9 AM”. on Thursday ‘A’ made a contract to
sell the property to ‘C’. ‘B’ heard of this from ‘X’ and on Friday 7 AM he
delivered to ‘A’ acceptance of his offer. Held ‘B’ could not accept A’s offer
after he knew it had been revoked by the sale of the property to C.
Acceptance (Section 2(b))
The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When
the person to whom the proposal is made signifies his assent thereto, the
offer is said to be accepted. Thus the proposal when accepted becomes a
promise.” An offer can be revoked before it is accepted.

As specified in the definition, if the offer is accepted unconditionally by the

offeree to whom the request is made, it will amount to acceptance. When the
offer is accepted it becomes a promise.

Example
‘A’ offer to buy B’s house for rupees 40 lacs and ‘B’ accepts such an offer.
Now, it has become a promise.

When an offer is accepted and it becomes a promise it also becomes

irrevocable. No legal obligation created by an offer.

Mode of acceptance
Under the Indian Contract Act, acceptance can be by following two ways:

 Implied acceptance: Acceptance which is not explicitly made by

means of speech or writing but, by the conduct of the person to
whom an offer is made. The striking of hammer thrice by the
auctioneer in order to show his acceptance to the offer made by a
bidder is an example of implied acceptance to the offer made by the
bidder at an auction to the auctioneer;
 Express acceptance: Acceptance which is made by means of words,
oral or written is known as an express acceptance. For example, A
offers B his watch for sale through a mail and A replies in positive to
the offer by email.

Acceptance: absolute and unqualified (Section 7)

Acceptance to be legally enforceable must be absolute and
unqualified. Section 7(1) of the Indian Contract Act provides that in order to
turn an offer into an agreement the acceptance to the offer must be absolute
and unqualified. The logic behind the principle that the acceptance to the
offer must be absolute and unqualified is that when acceptance is not
absolute and is qualified it results into a counter offer which leads to the
rejection of the original offer made by the offeror to the offeree. If the offeree
makes any variations in the original terms of the contract proposed to him
and then accepts the contract, such an acceptance would result in the
invalidity of the contract.

For example, if A offers to sell his bike to B for Rupees 10,000. But B
persuades A to sell him the bike for 7,000 rupees to which A denies and if B
at any later point of time agrees to buy the bike for 10,000 rupees. Then A is
under no obligations to sell him the bike as the counteroffer made by B puts
an end to the original offer.

It is also important that the acceptance made by the offeree should be in

toto, i.e. acceptance should be given to all the terms and conditions of the
offer as acceptance of only a part of the offer is not a good acceptance under
the law. For example, A makes an offer to B of sale of 30 kg of wheat at
Rupees 700 but B agrees to buy only 10 kg of wheat. Here the acceptance
made by B is not in toto with respect to the terms of the contract and
therefore, the acceptance made by B is no acceptance in the eyes of law and
therefore, A is under no obligation to sell him wheat since there is no contract
between them.

Legal rules and conditions for acceptance

 Acceptance must be absolute and unqualified
The offeree’s approval cannot be conditional. For example, ‘A’ wants to sell
her car to ‘B’ for Rs 2 lakh, ‘B’ can’t come back and says that she accepts the
offer but will buy the same for Rs. 1 lakh.

 Acceptance must be told to the offeror

If the acceptor just accepts the offer in his head and he does not mention the
same to the offeror, it can not be called an Acceptance, whether in an
express manner or an implied manner.

 Acceptance must be recommended in the following mode

Acceptance is sometimes required in a prescribed/specified communication
mode.

 In a reasonable amount of time, the acceptance is given

It’s very rare that an offer is always to get acceptance at any time and at all
times. Therefore, the offer defines a time limit. If it does not, it should not be
acknowledged forever.

Mere silence is not acceptance

If the offeree fails to respond to an offer made to him, his silence can not be
confused with acceptance. But, there is an exception to this rule. It is stated
that, within 3 weeks of the date on which the offer is made, the non-
acceptance shall be communicated to the offeror. Otherwise, the silence shall
be communicated as acceptance.

When communication is complete

 Communication of acceptance (Section 4)
Communication of acceptance is complete when it is put in the course of
transmission to him as to be out of the power of the acceptor to withdraw the
same and when it comes to the knowledge of the proposer.

Time of revocation of acceptance

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

Acceptance with subsequent condition

In the law of contract, the term “condition” is used in a loose sense and it is
used synonymously as “terms”, ‘’condition” or ”clause”. In its proper sense,
the term condition means some operative term subsequent to acceptance
and prior to acceptance, it is a fact on which the rights and duties of the
parties to the contract depend on. The fact can be any act or omission by any
of the contracting parties, an act of the third party or happening or not
happening of any natural event. Conditions are of three types, which are as
follows:

 Express condition: In an express condition, certain facts can operate

as condition as it has been expressly agreed upon by the parties to
the contract;

 Implied condition: When certain facts which operate as a condition

are not expressly mentioned by the parties but can be inferred by
the conduct of the parties to contract is known as an implied
condition;

 Constructive condition: When the court believes that the parties to a

contract must have intended to operate certain conditions because
the court believes that the Justice requires the presence of the
condition. These conditions are known as constructive conditions.
A contract comes into force by the acts or conduct of one party to the other
party. The acts or conduct of the party can be turned into a promise only by
meeting of mind or an agreement between both the parties. An acceptance
that carries a subsequent condition may not have the effect of counter-
proposal. Thus, where a person ‘A’ accepted the terms of the contract for the
sale of a good by accompanying the acceptance with the warning that if
money was not delivered to him by a particular date, then the contract will
remain repudiated. The acceptance of the offer would not be deemed to be a
counter-proposal.

Acceptance of counter proposals

In certain cases, the person whose proposal or offer has not been accepted
absolutely or unqualifiedly by the offeree as the offeree attaches a counter-
proposal to the original proposal, the offeror becomes bound by the counter-
proposal. If, by the conduct of the offeror, he indicates that he has accepted
the terms of the counter-proposal laid down by the offeree.

In the case of Hargopal v. People’s Bank of Northern India Ltd., an application

for shares was made with a conditional undertaking by the bank that the
applicant would be appointed as a permanent director of the local branch.
The shares were allotted to the applicant by the Bank without fulfilment of
the condition and the applicant was given his shares and the applicant
accepted the same without any protest regarding the non-fulfilment of the
terms of the contract. When there arose a dispute between the parties in a
court of law. The applicant contended that the allotment was void on the
ground of non-fulfilment of the conditions which were stipulated in the
original contract. The court rejected the contention from the applicant’s side
by holding that the same can not be pleaded by him as he has waived the
condition by his conduct.

In Bismi Abdullah and sons v. FCI, the court held that where tenders were
invited subject to the deposit of money. It was open to the tenderers to waive
the requirement and acceptance given to a tender without making the
deposit is binding upon the tenderer.

In D.S. Constructions Ltd v. Rites Ltd, the court held the where the tenderer
made variations to the terms of his tender within the permissible period, but
the variations were only partly accepted by the other side without the
tenderer’s consent lead to repudiation of the contract and so there was no
contract at all. Therefore, the earnest money deposited by the party can not
be forfeited.

Provisional acceptance
Provisional acceptance is the type of acceptance by the offeree which is
made subject to the final approval. A provisional acceptance does not
ordinarily bind either party to the contract until the final approval is given to
the provisional acceptance made by the offeree. Until the approval is given,
the offeror is at liberty to cancel the offer made to the offeree.

In Union of India v. S. Narain Singh, the High Court of Punjab held that where
the condition attached to the auction sale of the liquor was that the
acceptance of the bid shall be subject to confirmation by the Chief
Commissioner. The contract will not be complete till the highest bid is
confirmed by the Chief Commissioner and till the confirmation is made the
person whose bid is provisionally accepted is at liberty to withdraw the bid.

Similarly, in Mackenzie Lyall And Co. vs. Chamroo Singh And Co., the bid at
an auction was of provisional acceptance in nature ad the terms of the
contract stated that the bid shall be referred to the owner of the goods for his
approval and sanction.the court in this case also, allowed the person to
revoke his bid whose bid was provisionally accepted.

In Somasundaram Pillai vs. The Provincial Government Of Madras, the court

held that the bidder would be at liberty to withdraw his will prior to the final
approval of the provisional acceptance where the terms of the contract
expressly mention that a bid which has been provisionally accepted can not
be canceled subsequently.

When a provisional acceptance is subsequently ratified or accepted then it is

the duty of the offeree to inform the same to the offeror, as it is then when
the offeror becomes bound by the terms of the contract. Acceptance is not
complete until it is communicated by the offeror.

Acceptance and withdrawal of tenders

A Tender is a legal offer or proposal to do or abstain from doing an act and it
binds the party to performance to the party to whom the offer is made. A
tender can be made with respect to money or specific articles. If the tender is
not an offer then it falls in the same category as a quotation of price. When
the tender is accepted it becomes a standing offer. A contract can arise only
when an offer is made on the basis of the tender.

In Bengal Coal Co. v. Homee Wadia & Co., the defendant signed an
agreement. One of the terms of the contract was that the undersigned from
the day of signing the contract has to abide by the condition stipulated by the
contract which provides that they shall be required to provide a certain
quality of coal to the other party for a period of 12 months. The defendant
abided by the terms of the contract for some time but before the expiry of
the term of the contract, the defendants refused to comply with the
conditions which were stipulated under the contract. The plaintiff
subsequently sued the defendant for breach of contract. The court held that
there was no contract between the parties and the terms stipulated thereof
were just the part of a standing offer and the successive orders given by the
plaintiff was an acceptance of the offers of the quantity offered by the
defendant and therefore the order given by the plaintiff and the offer of the
defendant together constituted a series of contract. The defendants, in this
case, are not free to revoke the offers which were actually given by them. But
barring those offers aside, the defendants had the complete power of
revocation.
In Rajasthan State Electricity Board vs. Dayal Wood Work, the purchase
orders were issued in terms of an arrangement of supply. But the purchase
offer itself contained the provision that the tenderer can refuse to supply the
goods. The court, in this case, held that there was no concluded contract that
came into force and therefore, the contractor was at liberty to refund his
security deposit.

In a case where the tenderer has on some consideration promised not to

withdraw the tender or where there is a statutory provision restraining the
withdrawal of the tender, the tender becomes irrevocable. Just as the
tenderer has the right to revoke his tender in the same way the acceptor of
the tender also has the right to refuse to place any order.

In Madho Ram vs. The Secretary Of State For India, the military authorities
accepted a tender for the supply of certain goods but during the period of
tender, no requisition was ever issued. In an action against the military
authorities, the court held that the military authority was not bound
whatsoever by the acceptance of their offer to purchase any or all the goods
specified under the contract without any covenant to that issue. And so the
party giving his assent to the offer may at any time declare to the tenderer
that they no longer want to place an order for the purchase of goods.

Letter of intent to accept

A letter of intent to accept an offer is sometimes issued prior to the final
acceptance of the offer. Letter of intent does not have any binding effect on
any of the parties to the contract. In Dibakar Swain v. Cashew Development
corp. The letter of acceptance issued by the company only indicated their
intention to enter into the tender. The acceptance was not clearly reduced
into writing. The court held that there was no binding contract entered into
by the parties and no work order can be issued and so the amount which was
deposited by the tenderer can not be forfeited.

Liability for failure to consider tender

If a valid tender is opened then it must be duly considered by the inviting
authority because if the valid tender is not duly considered it would be unfair
on the part of the tenderer. In Vijai Kumar Ajay Kumar v. Steel Authority Of
India Limited, the court of appeal observed that in certain circumstances, the
invitation to tender can give rise to the binding contractual obligation on the
part of the person who invited the tenders who confirmed the conditions of
the tender.

In A. K. Construction v. State of Jharkhand, the contract was awarded to a

person who was not a qualified tenderer and he was chosen at the cost of a
qualified tenderer who brought an action against the decision of granting the
tender to the unqualified tenderer. The court, in this case, allowed the
awardee of the tenderer to complete his work and also allowed the aggrieved
party compensation of one lakh rupees to be recovered from the salary of the
guilty officers who were guilty of awarding the tender unreasonably.

Non-compliance with requirements

In Vijay Fire Protection Systems v. Visakhapatnam Port Trust And Anr., the
authorities inviting the tender made it clear to the tenderers that only one
brand of pump sets would be accepted. The authorities even gave the last
minute opportunity to the tenderers to change the quotations. The tenderer
to whom the tender for the supply of goods was given refuted to comply with
the terms of the contract. Subsequently, the authorities who invited the
tender cancelled the contract between them and the tenderer thereof. The
court held that the decision made by the authorities was not arbitrary and
they were having the right to do so.

In Kesulal Mehta vs. Rajasthan Tribal Areas, one of the conditions in the
tender was that the tenderer should have at least one year of work
experience in the work in question. The court, in this case, held that such
conditions could be relaxed and any otherwise competent contractor could be
given the tender and he could at a later point of time be required to produce
the certificate of work.

In KM Pareeth Labha v. Kerala Livestock Development Board , it was held that

where a tender invited the quotations for disposal of trees. The tender should
mention the approximate value of the trees which could be assessed by the
tenderers who can quote their price.

Tender with concessional rate

In Kanhaiya Lal Agrawal vs. Union Of India & Ors, in this case, tender offered
firm rates, as well as concessional rate, provided the tender gets finalized
within a shorter period of time than generally followed. The court held that it
did not result in the formation of a conditional offer which hinges on the
happening or non-happening of any event and the condition which was put
forth was only meant for bringing about more expeditious acceptance.

Certainty of terms
An agreement regarding the sale of immovable property should identify the
property with certainty. The agreement should be based on mutuality and
should fix the price. In New Golden Bus Service vs. State Of Punjab And Ors.,
the tender was made inviting the tender for hiring services for the vehicle but
it did not stipulate any time period. The lowest tenderer was awarded the
tenderer for a period of three years. The court, in this case, held that there
was nothing wrong in it as an open-ended tender can not be regarded as void
because of the reason for its vagueness. The tender, in this case, specified
that the tender can not be issued for a vehicle that is more than six months
old and the tenderer who was awarded the tender complies with the specified
conditions specified under the tender. The acceptance of substitute vehicles
which were of equal efficiency and cost by the authority inviting the tender
was not arbitrary.

Preventing from tendering and blacklisting

In Utpal Mitra vs. The Chief Executive Officer, a bidder was prevented by
some elements inside the office from submitting the tender. The authorities
carried on the enquiry confirming the allegations. The person who was so
ruled out from the tender was later on permitted to submit his tender after
two intervening holidays and his tender was later on accepted. The court held
that no prejudice was caused to the other tenderers as the work issued to
them was not interfered with.

In Merittrac Services Private v. Post Graduate Institute, it was held that the
provision of blacklisting a contractor arises only when the contract is awarded
and the tenderer fails to perform any conditions stipulated in the contract.
For the purpose of seeking permission for making his proposal, some material
facts may be required from the bidder about his experience.

The party allocating the contracts has the indispensable power of blacklisting
the contractor. But when in cases where the party is the state, the decision to
blacklist is open to judicial review to ensure proportionality and principle of
natural justice.
Consideration (Section 2(d))

Why do we need consideration

Only the promises that are backed by consideration are enforceable because
any promise made without any obligation is usually very rash and without
any sort of deliberation. The reason for making consideration an essential
part of a contract is because it levies a sort of burden on the parties to fulfil
the terms of the contract. For Example, if, A promises to give B a car without
B doing or abstaining to do anything for it, makes the promise by an
unenforceable. This will be a gift and not a contract per se.

Legal requirements as to consideration

 Must move at the desire of the promisor- Section 2d of the Indian
Contract Act, 1872, clearly mentions that the consideration should
be at the desire of the promisor if the consideration is made at the
will of the third person or is not according to the promisor then it is
not a good consideration.

 Can move from the promisee or another person- Unlike English law
in which the consideration must move at the desire of the promisor,
in Indian law as long as there is consideration it is immaterial as to
who has furnished it. Moreover, in the case of Chinnaya vs.
Rammyya the consideration can also move at the desire of the third
party but only in the condition where he is the beneficiary of the
contract.

 Can be an act, abstinence or even a promise- If the promisee does

something or abstains from doing something for the promisor, at his
desire, then it will be a good consideration.
 Can be past, present or future:
PAST- When the consideration is given before the promise was made. For
example- A saves B at the latter’s desire. B after a month promises to pay A.
the act of A will amount to past consideration for the payment made by B.

PRESENT- When the consideration is given simultaneously to the promise

made, then this is present consideration or executed consideration. For
example- cash sales.

FUTURE- When the consideration of the promise made is to be passed at a

future date then that is called future or executory consideration. For
example- A promises to pay B, when the latter will fetch newspaper for him.
  Consideration need not be adequate- It is not necessary that the
consideration is equal or adequate for the promise made. However,
it is mandatory that the consideration should be something in which
the law attaches some value. It is for the parties to decide the value
of the consideration and not a court of law. For example- A sells a
table to B and B gives him rs 500. It will be difficult for the court to
ascertain the value of the table, so if A is satisfied with the amount
given then the consideration is valid.

 Should be real- although the consideration need not be adequate it

should be real and not illusory. The consideration should not be
physically impossible, legally not permissible or based on an
uncertain event or condition.

 Should not be something which the promisor is already bound to do-

a consideration to do something which the promisor is already
required to do is not a good consideration. For example- the public
duty done by a public servant.
 Should not immoral, or against the public policy of the state-
under Section 23 of the Indian contract it is given that consideration
should not be illegal, immoral or against public policy. The court
should decide the legality of the consideration and if found to be
illegal then no action on the agreement should be allowed.

Stranger to a contract
It is a general principle that the contract can be enforced only at the behest
of the parties to the contract. No third party could enforce it. It arises from
the contractual relationship between the two parties. However, Lord
Dennings has criticised this rule a number of times as this rule has never
benefited the third party whose roots go deeper in the contract. This rule has
two consequences-

 No third party could enforce the contract.

 The contract between the parties cannot levy an obligation on any
person other than those parties to a contract.

Exception
There are three exceptions to this rule:

 Marriage settlements- When an agreement is made with regards to

marriage, family settlement or partition and is made in such a way
that it benefits another person who is not a party to the contract
then he may sue for the enforcement of the contract.
  Covenants running with the land- in cases of the contract of property
the purchaser will be bound by all the conditions and covenants of
the land, even though he was not a party to the original contract.
 Acknowledgement of estoppels- in case the terms of the contract
require that an agreement has to be made with the third party, then
this has to be acknowledged. This acknowledgement could be
expressed or implied. This exception covers the areas where the
promisor either expressly or by conduct has posed himself to be an
agent.

Past consideration
It is the consideration which is made before the agreement. It is something
which the promisee has already done at the desire of the promisor.

For example- A rescues B. B promises to give him Rs. 1000 for the same.
Here it is a past consideration as the act of rescuing happened before any
agreement.

In English law past consideration is no consideration. If A saves B and B

promises him to pay but later refuses to do so, then under English law, A
cannot enforce it in a court of law. B can give him the money, but that would
not be considered as a past consideration but it would be by way of gratitude.
This, however, causes a lot of inconveniences, as if a person would pay for
the past act then he shall have to recognise the past consideration which is
not valid under English Law. the report of the law commission of England
proposes to remove this rule.

In India however, there is no compulsion to follow the English law and past
consideration is regarded to be valid.

Past act at request good consideration

The past act done for consideration would be a good consideration. In the
case of Lampleigh vs. Brathwait, in which the defendant requested the
plaintiff to help him get a pardon from the king. The plaintiff put in efforts,
travelled up to the king etc.his request was not sanctioned. The defendant
promised to pay him for the same. Later he refused to do so. Plaintiff sued
him in a court of law. The court held that the defendant must pay the plaintiff
because he has himself requested him to help him. Hence the act of the
plaintiff, although done in the past, would still be regarded as a valid
consideration.

Past voluntary service

If a person renders voluntary services without any request or promise from
another and the person receiving the services makes a promise to pay for the
services, then such a promise is enforceable in India under Section 25(2) of
the Indian Contract Act, 1872 which states: ‘‘An agreement made without
consideration is void unless it’s a promise to compensate, wholly or in part, a
person who has already voluntarily done something for the promisor, or
something which the promisor was legally compellable to do; or unless.’’

For Example- Peter finds Noah’s wallet on the road. He returns it to him and
Noah promises to pay Peter Rs 500. This is a valid contract under the Indian
Contracts Act, 1872.

Past service at request past and executed

An act done before the giving of a promise to make a payment or to confer
some other benefit can be a consideration for the promise. The act must
have been done at the promisor’s request, the parties must have understood
that the act was to be remunerated either by a payment or the conferment of
some other benefit, and payment or the conferment of a benefit must have
been legally enforceable had it been promised in advance.

Executory consideration
Consideration may be something which is done or in the process of being
done. It also consists of an act which is promised to be done in the future.
There may be promises which form the consideration for each other. Before
the completion of a promise which forms a part of the consideration of the
other promise, then such consideration is called executory consideration.

For example- if A promises to pay B when he will sell the goods to him. Until
time A does not get the goods, the consideration is executory, when he got
the goods and paid for the same, the consideration is executed. If B does not
sell the goods then A could also breach for the suit.

Value need not be adequate

Consideration is defined as an act of abstinence from doing something, at the
desire of the promisor. The consideration should be of some value in the eyes
of law, but the courts have been very liberal in interpreting and anything of
value by the parties is regarded as a valid consideration.

The value need not be adequate for the promise made. The court will not
enquire whether the value of the consideration is equivalent to the promise
that is made. If the parties agree to the value of the consideration then it is
sufficient. This rule is applicable as per Indian and English law.
Inadequacy as evidence of imposition
The inadequacy of consideration is regarded to check whether the consent is
freely given. For example- A agrees to sell his property worth Rs 1 crore to B
for Rs 10,000. denies that his consent for the sale of the property was not
freely given. A party seeking to set aside the transaction based on the
inadequacy of the consideration must show that he was unable to understand
it or was by way of some imposition. If the court is satisfied that the contract
was freely entered into then it would not matter whether the consideration
was adequate or not.

Where the consideration is inadequate it could be because of fraud, coercion,

mistake etc. the same would be the case when the consideration is so low
that it shows some serious inequality of the bargaining power.

Forbearance to sue
The most usual form of forbearance is the forbearance to sue within a
reasonable time. This promise to forebear can be expressed or implied from
the circumstances. Sometimes it is very difficult to construe from the fact
whether it was an agreement to forbearance (which is not a good
consideration until not backed by the request of the promisor) or actual
forbearance. Hence to clarify in the case Bittan Bibi vs. Kuntu Lal, it was held
that the promise of forbearance should move at the desire of the promisor.

Forbearance to sue on a claim which is void is not a consideration. Moreover,

abstaining to sue could be a valid consideration only when the person who is
abstaining, has a valid right to sue. Also, it is not necessary to specify the
time for such abstinence. A request for forbearance without specifying the
length is understood to be a forbearance for a reasonable time.

Compromise good irrespective of merits

It is an important kind of forbearance which is undertaken by way of a
compromise of a doubtful claim. The important element here is to ascertain
the limits of which the compromise will function and will still be a good
consideration. The difference between forbearance and compromise is that in
the latter claim is not admitted and the claimant promises to abandon the
claim.

The abandonment of a doubtful or disputed claim is a good consideration

even if it later turns out to be unsustainable. The test is to find whether the
person thought in good faith and he has a case which he was abandoning. A
compromise of a claim arising out of an illegal contract is insufficient as a
consideration unless the compromise arises out of a dispute of fact as to
whether the contract is illegal.
Performance of existing duties

Performance of legal obligations

The performance of what one is already bound to do, either by general law or
by a specific obligation to the other party, is not a good consideration for a
promise, because such performance is not a legal boundation of a person.
Moreover, on the performance of a legal obligation, a reward from the private
organisation is taken then it would be against the public policy. It should be
ensured that the legal duty actually exists. But if a man who already has a
legal obligation undertakes to do something or to do something in any of the
admissible ways i.e. the person has forgotten the choice that the law allows
him to take is a good consideration.

Moreover, the actual performance of an existing duty may confer a factual

benefit, because on actual performance the promise is saved of pursuing a
legal remedy for its breach.

Performance of contractual obligations

Pre-existing contract with the promisor

Usually, the performance of a duty already owed under the contract to the
promisor is not good consideration. Even in terms of public policy, it is
necessary to discourage a tendency to use improper pressure or threatening
to break one’s contract unless another party complies by paying or promising
to do so. The promisee must find it beneficial to perform the promise
immediately rather than paying for its breach which may not fully
compensate the promisor.

Promise to pay less than the amount due

A promise to pay less than what is due in the contract cannot be regarded as
consideration. This rule was given in Pinnel’s case. The court held that a
smaller amount cannot in whole satisfy a larger sum. However, a gift of the
horse, robe etc can be considered as a good satisfaction because under
certain circumstances it is considered to be more beneficial than money,
otherwise, the person would not accept it.

This holding was criticised in a way wherein several cases the jurist held that
if the party is content to receive any amount be it less than the sum and he is
satisfied by the same, then it should be considered to be a valid
consideration. However, in spite of all this criticism, the Pinnel’s Case was
applied unanimously in various circumstances.
Exceptions to the rule in Pinnel case

Part-payment by the third party

The part payment by the third party may be a good consideration for the
whole debt.

Composition
Payment of a lesser amount would be a good consideration for the larger sum
where this is done for some already entered compromise.

Payment before time

Payment of a lesser sum before the time or in a different mode, a different
place than agreed by the parties or the gift of a horse or robe etc is a valid
satisfaction of the goods.

Promissory estoppel
The doctrine of promissory estoppel is considered to be a departure from the
doctrine of consideration. A promise that was made in the future is estoppel.
If the promise is made with the intention that it would be acted upon and it
was in actuality acted on, then the promisor cannot be allowed to back out
and it could be enforced in a court of law as well.

Promissory estoppels differ from traditional contract theory. It protects

reliance. This doctrine was developed to prevent injustice if the promisee
suffers from any injustice due to the reliance on the promise of the promisor,
even though it was not required for consideration. However, in English law,
the doctrine of promissory estoppel is used only as passive equity and is
invoked only in the cases of defence.

Position under the Indian contract act is different than under

English Law

Under English Law

It is an established rule under English law that the third party cannot sue a
contract made for his own benefit. Apart from special circumstances. A
person who is not a part of the contract cannot enforce or rely for protection
on its provisions. Such right can be conferred to a property by way of trust
but it cannot be on a stranger to a contract as a right to enforce the contract.
Under Indian Law
It is established that the consideration can move from a third party but it
cannot sue for its own agreement. However, there was lots of confusion on
this point. Although the definition of “consideration” is wider in the Indian
than in the English law since common law is applicable, therefore it is
generally applied that the third party cannot enforce the contract.

Law Commission of India in one of its reports mentioned that the contract
must be enforceable by a third party if it expressly for his benefit but the
defences of the party to the contract must also be considered. It is also
proposed that the parties cannot alter the terms of the contract once the
third party takes over the contract.

Pre-existing contract with the third party

A promise to perform a pre-existing contractual obligation with a third party
can be a valid consideration for another contract. The point of conflict in
these kinds of arrangements is regarding the presence of consideration for
the promisor. This conflict was settled in the case of Shadwell vs. Shadwell,
where the plaintiff got engaged and his uncle wrote him a letter promising
him to pay 150 pounds throughout his lifetime.

The jurists in the above case held that there was adequate consideration for
the contract as it could be construed from the fact that it was made because
of the engagement of his nephew. Moreover, marriage is of great interest to
the near relatives. Also, the contract is binding on the uncle as it is possible
that the plaintiff has undertaken many liabilities on account of the promise
given by the uncle and if the payment is withheld then the plaintiff could face
a lot of embarrassment.

Under these provisions, the person should be safeguarded from any further
payment which is not enforceable as per the contract. Like in the case
of Syros Shipping vs. Elaghil Trading co. a vessel which was prepaid had to
deliver tractors to Yemen. The charters defaulted their payment to the
shipowner because of the congestion in the ports. During this period the
shipowner asked for extra payment, the consignees agreed to pay but later
refused. The court held that since there was no consideration for the promise,
moreover no estoppel was created hence the contract is not enforceable.

Consideration and motive

Consideration is not the same thing as motive or a mere desire. The
requirement of consideration is vital and the contract could not be satisfied
with just a moral obligation. Consideration for a promise is always a motive
for the promise, unless it is nominal or invented, while a motive for a promise
may not always be a consideration for it. Motive induces a promise to be
given. Similar holding was given in the case of Dwarampudi Nagarathnamma
vs. Kuruku Ramayya, where the Karta of a Hindu Undivided Family gifted his
concubine a portion of the property beyond the cohabitation was a motive
and not a consideration, and it should be considered as invalid because it was
motivated by the desire to compensate for his past services.

Absence of consideration
If the promissory note is neither genuine nor fraud then it is recoverable
under the provision of this code, with interest. The court said that mere
denial of the passing of consideration does not make any defence. Something
which is probable has to be brought on record.