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PROJECT REPORT Business And Labour Law Offer And Acceptance 5/21/2012 Muhammad Naveed & Waseem Haider

Offer and Acceptance Project

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Project Report

Business And Labour Law

Offer And Acceptance

5/21/2012

Muhammad Naveed & Waseem Haider

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Offer and acceptance: Analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties. Agreement consists of an offer by an indication of one person (the "offeror") to another (the "offeree") of the offeror's willingness to enter into a contract on certain terms without further negotiations. A contract is said to come into existence when acceptance of an offer (agreement to the terms in it) has been communicated to the offeror by the offeree and there has been consideration bargained-for induced by promises or a promise and performance.

The offer and acceptance formula, developed in the 19th century, identifies a moment of formation when the parties are of one mind. This classical approach to contract formation has been weakened by developments in the law, misleading conduct and misrepresentation.

Offer

Defines an offer as "an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed", the "offeree".

An offer is a statement of the terms on which the offeror is willing to be bound. It is the present contractual intent to be bound by a contract with definite and certain terms communicated to the offeree.

The "expression" referred to in the definition may take different forms, such as a letter, newspaper, fax, email and even conduct, as long as it communicates the basis on which the offeror is prepared to contract.

o Unilateral contract

The contract known as a unilateral contract, one in which the offeree accepts the offer by performing an act which indicates their agreement with the bargain. This can be something as simple as raising an eyebrow or wearing a certain color t-shirt. It can be contrasted with a bilateral contract, where there is an exchange of promises between two parties.

o Invitations to treat

An invitation to treat is not an offer, but an indication of a person's willingness to negotiate a contract. It's a pre-offer communication means an indication by the owner of property that he or she might be interested in selling at a certain price.

The courts have tended to take a consistent approach to the identification of invitations to treat, as compared with offer and acceptance, in common transactions. The display of

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goods for sale, whether in a shop window or on the shelves of a self-service store, is ordinarily treated as an invitation to treat and not an offer.

The holding of a public auction will also usually be regarded as an invitation to treat. Auctions are, however, a special case generally. The rule is that the bidder is making an offer to buy and the auctioneer accepts this in whatever manner is customary, usually the fall of the hammer.

o Revocation of offer

An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror. If the offer was made to the entire world, the revocation must take a form that is similar to the offer. However, an offer may not be revoked if it has been encapsulated in an option.

If the offer is one that leads to a unilateral contract, then unless there was an ancillary contract entered into that guaranteed that the main contract would not be withdrawn, the contract may be revoked at any time.

Acceptance

For the Acceptance, the essential requirement is that the parties had each from a subjective perspective engaged in conduct manifesting their assent. Under this meeting of the minds theory of contract, a party could resist a claim of breach by proving that he had not intended to be bound by the agreement, only if it appeared subjectively that he had so intended. This is unsatisfactory, as one party has no way to know another's undisclosed intentions. One party can only act upon what the other party reveals objectively to be his intent. Hence, an actual meeting of the minds is not required. Indeed, it has been argued that the "meeting of the minds" idea is entirely a modern error.

The requirement of an objective perspective is important in cases where a party claims that an offer was not accepted and seeks to take advantage of the performance of the other party.

Rules of acceptance

Communication of acceptance

There are several rules dealing with the communication of acceptance:

The acceptance must be communicated An exception exists in the case of unilateral contracts, in which the offeror makes an offer

to the world which can be accepted by some act

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An offer can only be accepted by the offeree, that is, the person to whom the offer is made. An offeree is not usually bound if another person accepts the offer on his behalf without his

authorisation. It may be implied from the construction of the contract that the offeror has dispensed with

the requirement of communication of acceptance. If the offer specifies a method of acceptance (such as by post or fax), acceptance must be

by a method that is no less effective from the offeror's point of view than the method specified. The exact method prescribed may have to be used in some cases but probably only where the offeror has used very explicit words such as "by registered post, and by that method only.

However, acceptance may be inferred from conduct.

Correspondence with offer

The "mirror image rule" states that if you are to accept an offer, you must accept an offer exactly, without modifications; if you change the offer in any way, this is a counter-offer that kills the original offer. However, a request for information is not a counter-offer. It may be possible to draft an enquiry such that it adds to the terms of the contract while keeping the original offer alive.

An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror. If the offer was made to the entire world, the revocation must take a form that is similar to the offer. However, an offer may not be revoked if it has been encapsulated in an option.

Battle of the forms

Often when two companies deal with each other in the course of business, they will use standard form contracts. Often these terms conflict (e.g. both parties include a liability waiver in their form) and yet offer and acceptance are achieved forming a binding contract. The battle of the forms refers to the resulting legal dispute of these circumstances, wherein both parties recognize that an enforceable contract exists, however they are divided as to whose terms govern that contract.

A definite expression of acceptance or a written confirmation of an informal agreement may constitute a valid acceptance even if it states terms additional to or different from the offer or informal agreement. The additional or different terms are treated as proposals for addition into the contract.

These includes:

a) the offer expressly limits acceptance to the terms of the offer, b) material alteration of the contract results,

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c) notification of objection to the additional/different terms are given in a reasonable time after notice of them is received.

Material is defined as anything that may cause undue hardship/surprise, or is a significant element of the contract.

Postal acceptance rule

As a rule of convenience, if the offer is accepted by post, the contract comes into existence at the moment that the acceptance was posted. This rule only applies when, impliedly or explicitly, the parties have in contemplation post as a means of acceptance. It excludes contracts involving land, letters incorrectly addressed and instantaneous modes of communication.

Knowledge of the offer

In law, there is a requirement that an acceptance is made in reliance or pursuance/knowledge of an offer.

Rejection, death or lapse of time

An offer can be terminated on the grounds of rejection on the part of the offeree, that is if the offeree does not accept the terms of the offer. Also, upon making an offer, an offeror may include as a condition to the contract the duration in which the offer will be available. If the offeree fails to accept the offer within this specific period, then the offer will be deemed as terminated.

o Death of offeror

Generally death (or incapacity) of the offeror terminates the offer. This does not apply to option contracts.

The offer cannot be accepted if the offeree knows of the death of the offeror. In cases where the offeree accepts in ignorance of the death, the contract may still be valid, although this proposition depends on the nature of the offer. If the contract involves some characteristic personal to the offeror, the offer is destroyed by the death.

o Death of offeree

An offer is rendered invalid upon the death of the offeree.

Counter Offers and acceptance

If the offeree rejects the offer, the offer has been destroyed and cannot be accepted at a future time. A case illustrative of this is, where in response to an offer to sell an estate at a certain price, the customer made an offer to buy at a lower price. This offer was refused and

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subsequently, the customer sought to accept the initial offer. It was held that no contract was made as the initial offer did not exist at the time that the customer tried to accept it, the offer having been terminated by the counter offer.

It should be noted that a mere inquiry (about terms of an offer) is not a counter offer and leaves the offer intact.

The first step in a contract question is always to make sure that a contract actually exists. There are certain elements that must be present for a legally binding contract to be in place.

The first two are the most obvious:

An offer: an expression of willingness to contract on a specific set of terms, made by theofferor with the intention that, if the offer is accepted, he or she will be bound by a contract.

Acceptance: an expression of absolute and unconditional agreement to all the terms set out in the offer. It can be oral or in writing. The acceptance must exactly mirror the original offer made.

A counter-offer: is not the same as an acceptance. A counter-offer extinguishes the original offer: you can’t make a counter-offer and then decide to accept the original offer! But…

A request for information is not a counter-offer. If you ask the offeror for information or clarification about the offer, that doesn’t extinguish the offer; you’re still free to accept it if you want.

It is very important to distinguish an offer from an invitation to treat – that is, an invitation forother people to submit offers. Some everyday situations which we might think are offers are in fact invitations to treat:

For example:

Goods displayed in a shop window or on a shelf.

When a book is placed in a shop window priced at 200.00, the bookshop owner has made an invitation to treat.

When I pick up that book and take it to the till, I make the offer to buy the book for 200.00.

When the person at the till takes my money, the shop accepts my offer, and a contract comes into being.

Adverts basically work in the same way as the scenario above. Advertising something is like putting it in a shop window.

Auctions:

The original advertising of the auction is just an invitation to treat.

When I make a bid, I am making an offer.

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When the hammer falls, the winning ‘offer’ has been accepted. The seller now has a legally binding contract with the winning bidder (so long as there is no reserve price that hasn’t been reached)

An offer can be revoked at any time before it is accepted, so long as you inform the person you made the offer to that the offer no longer stands.

Consideration: each party to the contract must receive something of value.

This is best illustrated by an example: suppose I promise to give you my watch, but you don’t give me anything in return. If I break my promise and keep my watch, you can’t then go to court and make me give it to you. The contract isn’t legally binding: you didn’t give me any consideration for my promise.

So put simply, consideration is the price paid for the other’s promise.

There are four legal maxims that apply to consideration:

o Consideration must move from the promisor;o Consideration need not move to the promisee;o Past consideration is not good consideration;o The consideration given must be sufficient, but it need not be adequate.o The detail isn’t necessary here, but there is a separate note on them if you’re interested.

Intention to create legal relations: if my brother offers me a lift to lahore, and I say I’ll contribute to the cost of the petrol and then don’t, there isn’t necessarily a binding contract that he can sue me under. If the arrangement is an informal, social one, then my offer to pay for petrol probably wasn’t made with the intention of being legally bound.

In general, arrangements of a social nature are presumed not to be legally binding, whilst commercial arrangements are presumed to be intended as binding contracts. Of course, these presumptions can always be rebutted in court by producing evidence to the contrary.

Advantages of offer and acceptance:

Once an offer of acceptance or an agreement is made and one party mails a letter stating this, the offer is considered valid. This offers an advantage to prospective buyers, allowing the offer to remain valid once the letter is mailed. Once the acceptance letter is mailed, the deal becomes a legally binding contract.

The advantages and disadvantages are as follows :- 

Until the offer is accepted the offer can't be said as complete so it provides a security which brings the attention of the contract into existence at the moment of acceptance.

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Advantage of it is that when the offer of acceptance is being made and the receiving party sends the confirmation to the party which sent the offer than the offer will be considered as valid.The disadvantage of it is that the offer can be terminated or rejected on the part of the person who is offering the offer. So it is totally dependent on the offerer rather than the the person who is involved in it.

Another disadvantage of this is that if the offeree rejects the offer then offerer can't be accepted at future time.

Legal Rules Regarding Offer :

An offer to be valid must comply with the following rules:

1. Offer may be express or implied:

An offer may be express or may be implied from the conduct of the parties or circumstances of the case.

Express Offer: An express offer is made by words spoken or written.Examples:

(1) A says to B, "Will you purchase may car for Rs. 15,000? It is an oral offer.

(2) A, through a letter asks B to buy his car for Rs. 15,000. It is a written offer.

Implied Offer - An implied offer is not made by words spoken or written. It is implied from the conduct of the parties or from the circumstances.

Examples:

(1) Public Transport, like, Railways. RTC in RWP or offer to carry passengers for a certain fare on a particular route.

(2) Public Telephones or Weighing Machines in public places like, Railway Stations or Cinema Houses offer their services for a certain amount, say one rupee.

2. Offer may be specific or general:

A specific offer is one which is made to a particular person. It can be accepted by the person to whom it has been made, no one else can accept such an offer.

Example:

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A offers to sell his watch to B for Rs. 200. This is a specific offer made to B. It is B alone who can accept this offer and no one else can accept this offer, i.e., C or D cannot accept this offer.

A general offer is made to the world at large. Therefore, it can be accepted by any person.

Example:1. A advertised in a Newspaper that he would give Rs. 100 to anyone who finds and returns his lost dog.

3. Offer must give rise to legal obligation:

An offer to be valid must create legal relationship between the parties. The very purpose of entering into an agreement is to make it enforceable at a Court of law. If the offer has not been made with this intention it will not become a contract even if it is accepted by the party to whom it was made.

Example:

A promised to pay Rs. 30 to his wife every month. Later, A failed to pay the amount. The wife filed a suit against the husband to recover the amount. The Court held that she could not recover as the promise was not made with an intention to create any legal relationship.

4. Terms of an offer must be definite and certain:

The terms of an offer should not be vague or indefinite.

Example:

A has two cars - Ambassador and Fiat. He agrees to sell one of his cars to B for Rs. 20,000.

It is not clear as to which of the cars A has agreed to sell. A might be thinking to sell the Ambassador car while B might be thinking to purchase the Fiat car. The offer is not definite.

5. Offer must be distinguished from an invitation to offer:

An offer must be distinguished from an invitation to offer. The shopkeepers generally display their goods in showcases with price tags. The shopkeeper in such cases is not making an offer so that you can accept it. He is, on the other hand, inviting you to make

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an offer which he may or may not accept. Thus you cannot compel a shopkeeper to sell the goods displayed in the showcase at the marked price. However, if there is specific law to sell goods at marked price then the seller will have to sell at marked price. For example, during National Emergency essential commodities like sugar etc. have to be sold at marked price.

6. Offer must be distinguished from a mere declaration of intention:

A declaration of intention to make an offer is not an offer. It is regarded as an invitation to offer. An advertisement for sale in a Newspaper or Magazine etc. is not an offer for sale.

Example:

A advertised to sell certain furniture by auction, B reached A's house to purchase the furniture. However, A changed his mind not to sell the furniture. B cannot compel A to sell the furniture or even to recover his damages, i.e., conveyance charges and damages for inconvenience caused to him due to cancellation of the sale.

It should be noted that a general offer can be made through advertisement if the terms are certain and capable of being accepted.

Example:

A lost his camera in a public bus. He announced a reward of Rs. 100 to the finder who may return it to him. B found the camera after reading the advertisement and returned it to him. B is entitled to the reward.

7. Offer must be communicated:

An offer must be communicated to the person to whom it is made. A person can accept the offer only when he knows about it. If he does not know it, he cannot accept it.

Example:

G sent his servant L to trace his lost nephew. Later on G, announced a reward for tracing the boy. L without knowing about the advertisement of the reward traced the boy and restored him to G. When L came to know of the reward, he claimed it. G refused to give the reward. The Court held that L was not entitled to recover the reward as the offer was not communicated to L. He could not accept an offer which he did not know.

8. Communication of Special Terms:

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Special terms of a contract must be communicated. Generally, such cases arise in respect of general offers, like tickets or receipts for depositing luggage at the Railway Station or receipts for clothes given for dry cleaning etc. The rule in these cases is that parties are not bound unless conditions printed are properly communicated.

Example:

A and his wife took a room on hire in a hotel. After booking the room, they entered the room and saw a notice on the wall of the room. The proprietors not responsible for articles lost or stolen unless handed over to the manager for safe custody."

Due to the negligence of the hotel staff, their property was stolen. Held, the proprietor of the hotel was liable as the notice was not binding, because it came to the knowledge of the client only after the contract to take the hotel on hire had already been made.

9. Offer must be made with a view to obtaining the consent of the other party to do or to abstain from doing the act:

The offer must be made with an intention to get the consent of the other party to do or to abstain from doing the act and not simply with a view to making known the intention of making an offer.

Example:

A tells B, "I may sell my Television if I can get Rs. 2,000 for it. It is not an offer as it has not been made with a view to get the consent of B. It is a mere declaration of intention. Therefore, B cannot accept it by saying. "I can pay you Rs. 2,000 for it." B is not accepting A's offer but is making his offer which A may or may not accept.

10. Offer should not impose an unnecessary obligation to communicate non-acceptance:

Thus an offeror cannot say that if acceptance is not communicated by Sunday next, the offer would be considered as accepted.

Example:

A offers his car to B for Rs. 20,000 saying, "If you do not reply by Sunday next, I shall presume, you have accepted the offer."

In this case, no contract will be created even if the acceptor does not reply as the law does not permit a party to impose an unnecessary obligation of the acceptor if he does not want to accept the offer. Thus in the above example, if the acceptor does not accept

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the offer he will be put to an unnecessary burden of informing the offeror that he does not want to accept the offer.

Acceptance: A contract comes into existence when a valid offer is validly accepted. Section of the Contract Act states that, ‘when the person to whom the offer is made signifies his assent thereto, the offer is said to be accepted. (An offer when accepted becomes promise)

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

1. Acceptance must be given by the person to whom the offer is made:

An offer can be accepted only by the person or persons to whom the offer is made; no one else can accept the offer.

In simple words, if A intends to contract with B and therefore makes an offer to B, C cannot intervene and accept the offer made to B, without the consent of A. Similarly, an offer to class of persons, can be accepted by any member of that class or group only and not by any other person not belonging to that group.

2. Acceptance must be absolute and unconditional:

The acceptance must be of the whole offer and without any change in the terms of the offer. A conditional or qualified acceptance is no acceptance in the eyes of law. Even a slight deviation from the terms of the offer would make the acceptance invalid. In fact, a conditional acceptance by itself is a counter-offer and not an acceptance.

If A offers an article to B for Rs. 100/-, the acceptance by B to buy the article for Rs. 90/- is no acceptance in the eyes of law.

3. Acceptance must be communicated in some reasonable manner, unless the manner is prescribed in the offer itself:

If the offerer prescribes any particular mode of acceptance, the acceptance has to be effected in that manner alone. Any other mode of acceptance would not do. The offerer can insist that the acceptance must be expressed in the mode prescribed by him and if not, the acceptance will not bind him, even though the mode prescribed by him may be funny or ridiculous. Where no mode is specified in the offer, acceptance must be communicated in a reasonable manner. What is reasonable manner would depend on the facts of each case.

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4. Acceptance must be communicated within reasonable time, unless the time is stipulated in the offer itself:

If the terms of the offer stipulate certain period within which the offer has to be accepted, the acceptance must be effected within the time so stipulated. If the acceptance is not communicated within the time stipulated in the offer, it will not bind the offerer since it is no acceptance in the eyes of law. Where no time is specified in the offer for its acceptance, the acceptance must be communicated within a reasonable time. What is a reasonable time would depend on the facts of each case.

5. It should be in a reasonable mode:

Unless the proposal prescribes the manner in which it is to be accepted. If the offeror prescribes no mode of acceptance the acceptances must be communicated according to some usual and reasonable mode. The usual modes of communication are by spoken or written or by conduct, it is called an implied acceptance. E.g. If the offeror prescribes acceptance by telegram and the offered sends acceptance through a messenger, there is no acceptance of the offer.

6. Acceptance must be communicated by the acceptor:

for an acceptance to the made it should to be made by the offer but also be communicated by, or will the authority of offered to the offeror.

7. Acceptance must succeed the offer:

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

Industry :

Offer and acceptance is involved almost in every industry like:

Real estate business Telecom industry

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Banking industry

C o n c l u s i o n s

This report deals with the traditional ‘offer and acceptance’ required for

formation of a contract, introducing the principle of objectivity in contractual

formation and contrasting bilateral and unilateral contracts. Offers are contrasted with

invitations to treat and standard commercial situations are analysed.

Likewise the requirements of acceptance and of communication of acceptance

are explored, as is revocation and the their implementations.

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