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BY ADM IN CLASS NOTES, CONTRACT LAW, LAW SCHOOLS, LLB GUIDE SEPTEM BER 16, 2012

Class Notes on Contract Law – Unit I (1st Sem / 3 year

LL.B)

Table of Contents 
0.0.0.1. Contract Law – I – Revision Study Notes for LL.B First Year
0.1. UNIT – I
0.1.1. Introduction to the Indian Contract Act, 1872
0.1.2. Enforceability of Contracts
0.1.3. Agreement, Contract and Proposal
0.1.3.1. Agreement definition [SECTION 2(e)]
0.1.3.1.1. What agreements are contracts [ SECTION 10 ]
0.1.3.1.2. Agreement becomes a contract if below conditions are met:
0.1.4. Proposal or Offer
0.1.4.0.1. Proposal definition [SECTION 2(a)]
0.1.4.0.2. Proposal terminology [SECTION 2(c)]
0.1.4.1. Communication of Proposal
0.1.4.1.1. Communication, acceptance and revocation of proposals [SECTION 3]
0.1.4.2. Promises, express and implied [SECTION 9]
0.1.4.3. Communication when complete [SECTION 4]
0.1.5. Intention to Contract
0.1.5.1. Family & Social matters
0.1.5.2. Business matters
0.1.5.3. Supreme Court’s view
0.1.5.4. Letters of intent
0.1.6. General Offers
0.1.6.1. Acceptance by performing conditions, or receiving consideration [SECTION 8]
0.1.6.2. General offer of continuing nature
0.1.7. Offer and Invitation to Treat
0.1.8. Acceptance – Section 2(b)
0.1.8.1. Introduction of Acceptance – Sec. 2(b)
 0.1.8.2. Communication of Acceptance
0.1.8.2.1. Acceptance by external manifestation or overt act.
0.1.8.2.2. Acceptance by Conduct
0.1.8.2.3. Communication to Offeror Himself
0.1.8.2.4. Communication to Acceptor himself
0.1.8.2.5. When Communication Not Necessary
0.1.8.2.6. Mode of Communication
0.1.9. Absolute and Unqualified
0.1.9.1. Section 7: Acceptance Must Be Absolute
0.1.9.1.1. Effect of departure from prescribed manner
0.1.9.2. Where no manner prescribed: reasonable and usual manner
0.1.9.2.1. When contract concluded (Postal Communication)
0.1.9.2.2. Section 4 – Communication when complete
0.1.9.3. Counter proposals
0.1.9.3.1. Partial acceptance
0.1.9.3.2. Inquiry into terms of proposal
0.1.9.3.3. Acceptance with condition subsequent
0.1.9.3.4. Acceptance of counter proposal
0.1.9.3.5. Provisional acceptance
0.1.9.3.6. Acceptance and withdrawal of tenders
0.1.10. Lapse of Offer
0.1.11. Revocation of Acceptance
0.1.11.1. Section 5: Revocation of proposals and acceptances
0.1.11.1.1. NOTICE OF REVOCATION
0.1.11.1.2. LAPSE OF TIME
0.1.11.1.3. FAILURE TO ACCEPT CONDITION PRECEDENT
0.1.11.1.4. DEATH OR INSANITY OF OFFEROR
0.1.11.2. SECTION 6: Revocation how made
0.1.11.3. Revocation of Acceptance
0.1.12. Standard Form Contracts
0.1.13. Consideration [SECTION 2 (d) and SECTION 25]
0.1.13.1. Definitions
0.1.13.2. Essential Elements of a Valid Consideration
0.1.13.2.1. Promissory Estoppel
0.1.13.2.2. “At the desire of the promisor”
0.1.13.2.3. Acts done at request:
0.1.13.2.4. Promises of charitable nature
0.1.13.2.5. Unilateral promises
0.1.13.2.6. Revocation of unilateral promises
0.1.13.2.7. Promissory Estoppel and government agencies
0.1.13.2.8. Estoppel of licensee
0.1.13.3. Privity of Contract and of Consideration
0.1.13.3.1. “Promisee or any other person”
0.1.13.3.2. Position of beneficiary who is not party
0.1.13.3.3. Fundamental propositions of English law
 0.1.13.3.4. Privity of consideration
0.1.13.3.5. Privity of contract
0.1.13.3.6. Exceptions to Privity rule
0.1.13.4. “…Has Done or Abstained from Doing…”
0.1.13.4.1. Past Consideration
0.1.13.4.2. Position in India
0.1.13.4.3. Past and executed consideration
0.1.13.4.4. Executory Consideration
0.1.13.5. “Such Act, Abstinence or Promise is called Consideration”
0.1.13.5.1. Consideration must be of some value
0.1.13.5.2. Value need not be adequate (adequacy of consideration)
0.1.13.5.3. Inadequacy as evidence of imposition
0.1.13.5.4. Forbearance to sue
0.1.13.5.5. Compromise good irrespective of merits
0.1.13.6. Performance of Existing Duties
0.1.13.6.1. Performance of legal obligations
0.1.13.6.2. Performance of contractual obligations
0.1.13.6.3. Exceptions to the Rule in Pinnel’s case
0.1.13.6.4. Consideration and motive
0.1.13.7. Exceptions to Consideration
0.1.13.7.1. Contracts under seal in English Law
0.1.13.7.2. Exceptions under S.25, Contract Act – in India
0.1.13.7.3. Gift actually made [S. 25 (Expln. I)]
0.1.13.8. Unlawful Consideration and its effect
0.1.13.9. Contractual Ability
0.1.13.10. Electronic Documents as Web Pages
0.1.13.11. Digital Certificate as Entry passes
0.1.13.12. Time and Place of Contract
0.1.13.13. Secured Custody of Electronic Records
0.1.13.14. Share this:
0.1.13.15. Like this:
0.1.13.16. Related

CONTRACT LAW – I – REVISION STUDY NOTES FOR LL.B FIRST YEAR

UNIT – I
Introduction to the Indian Contract Act, 1872
A contract may be defined as a legally binding agreement or, in the words of Sir Frederick
Pollock: “A promise or set of promises which the law will enforce.”
Section 2(h) of Indian Contract Act, 1872 defines contract as “An agreement enforceable by
law”. Thus, formation of a contract there must be an agreement, and the agreement should be
enforceable by law.

The agreement will create rights and obligations that may be enforced in the courts. The
normal method of enforcement is an action for damages for breach of contract, though in some
cases the court may order performance by the party in default.

Enforceability of Contracts
Void Contracts: A ‘void contract’ is one where the whole transaction is regarded as a
nullity. It means that at no time has there been a contract between the parties. Any goods
or money obtained under the agreement must be returned. Where items have been resold
to a third party, they may be recovered by the original owner.
Voidable Contracts: A contract which is voidable operates in every respect as a valid
contract unless and until one of the parties takes steps to avoid it. Anything obtained under
the contract must be returned, in so far as this is possible. If goods have been resold
before the contract was avoided, the original owner will not be able to reclaim them.
 Unenforceable Contracts: An unenforceable contract is a valid contract but it cannot be
enforced in the courts if one of the parties refused to carry out its terms. Items received
under the contract cannot generally be reclaimed.

Agreement, Contract and Proposal

Agreement de nition [SECTION 2(e)]
Agreement is defined as “every promise and every set of promises forming the consideration
for each other”. And a promise is defined as an accepted proposal.

WHAT AGREEMENTS ARE CONTRACTS  [ 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.

AGREEMENT BECOMES A CONTRACT IF BELOW CONDITIONS ARE MET:

1. There is some consideration

2. The parties are competent to contract
3. Their consent is free
 4. Their object is lawful

Proposal or O er
PROPOSAL DEFINITION  [SECTION 2(A)]

When one person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to such act or abstinence, he is said to make a
proposal.

PROPOSAL TERMINOLOGY  [SECTION 2(C)]

The person making the proposal is called the “promisor”, and the person accepting the
proposal is called the “promisee”

Communication of Proposal

COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS [SECTION 3]

The communication of proposals, the acceptance of proposals, and the revocation of

proposals and acceptances, respectively, are deemed to be made by any act or omission of
the party proposing, accepting or revoking, by which he intends to communicate such
proposal, acceptance or revocation, or which has the effect of communicating it.

Thus, a proposal may be communicated in any way which has the effect of laying before the
offeree the willingness to do or abstain. It may for example be done by words of mouth, or by
writing, or even by conduct.

Promises, express and implied [SECTION 9]

In so far as the proposal or acceptance of any promise is made in words, the promise is said to
be express. In so far as such proposal or acceptance is made otherwise than in words, the
promise is said to be implied.
An offer which is expressed by conduct is called an implied offer and the one which is
expressed by words, written or spoken, is called an express offer.

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For example, a bid at an action is an implied offer to buy, stepping into an omnibus, and
consuming eatables at a self-service restaurant.

Case Law: Upton Rural District Council v Powell:

A fire broke out in the defendant’s farm. He believed that he was entitled to the free services of
Upton Fire Brigade and, therefore, summoned it. The Brigade put out the fire. It then turned out
that the defendant’s farm was not within free service zone of the Upton, which therefore,
claimed compensation for the services. The court said: “The truth of the matter is that the
defendant wanted the services of Upton; he asked for the services of Upton and Upton, in
response to that request, provided the services. Hence, the services were rendered on an
implied promise to pay for them.

Communication when complete [SECTION 4]

The communication of a proposal is complete when it comes to the knowledge of the person to
whom it is made.
An offer cannot be accepted unless and until it has been brought to the knowledge of the
person to whom it is made. This principle enabled the Allahabad High Court in Lalman v Gauri
Datt to deal with a matter involving a very crucial question on this point.

Defendant’s nephew absconded from home. He sent his servant in search of the boy. When
the servant had left, the defendant by handbills offered to pay Rs.501 to anybody discovering
the boy. The servant came to know of this offer only when he had already traced the missing
child. He, however, brought an auction to recover the reward. But his action failed. BAERJI
J explains: “In my opinion a suit like the present can only be founded on a contract. In order to
constitute a contract, there must be an acceptance of an offer and there can be no acceptance
unless there is knowledge to the offer”.

Intention to Contract
There is no provision in the Indian Contract Act requiring that an offer or its acceptance should
be made with the intention of creating a legal relationship. But in English law it is a settled
principle that “to create a contract there must be a common intention of the parties to enter into
legal obligations.”

Case law: Balfour v Balfour

The defendant and his wife were enjoying leave in England. When the defendant was due to
return to Ceylon, where he was employed, his wife was advised, by reason of her health, to
remain in England. The defendant agreed to send her an amount of 30 pound a month for the
probable expenses of maintenance. He did send the amount for some time, but afterwards
differences arose which resulted in their separation and the allowance fell into arrears. The
wife’s action to recover the arrears was dismissed.

Family & Social matters

All that the law requires is that the parties must intend legal consequences. In the case
of McGregor v McGregor, illustration of a binding engagement between a husband and wife.
Here a husband and wife withdrew their complaints under the agreement by which the
husband promised to pay her an allowance and she to refrain from pledging his credit, the
agreement was held to be a binding contract.

Business matters

Supreme Court’s view

The Supreme Court noted the general proposition that in addition to the existence of an
agreement and the presence of consideration there is also the third contractual element in the
form of intention of the parties to create legal relations.

Letters of intent
A letter of intent merely indicates a party’s intention to enter into a contract on the lines
suggested in the letter. It may becomes a preclude to a contract. However, where a letter
stated that it would be followed by a detailed purchase order which carried an arbitration
clause, it was held that the letter was not a supply order and the arbitration clause contained in
it did not by itself fructify into an arbitration agreement.

General O ers
Acceptance by performing conditions, or receiving consideration [SECTION 8]
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.

Carlil v Carbolic Smoke Ball Co

A company offered by advertisement to pay 100 pound to anyone “who contracts the
increasing epidemic influenza, colds or any disease caused by taking cold, after having used
the ball according to printed directions.” It was added that 1000 pound is deposited with the
Alliance Bank showing our sincerity in the matter”. The plaintiff used the smoke balls according
to the directions but she nevertheless subsequently suffered from influenza. She was held
entitled to recover the promised reward.

General o er of continuing nature

Where a general offer is of continuing nature, as it was, for example, in the Smoke Ball case, it
will be open for acceptance to any number of persons until it is retracted. But where an offer
requires some information as to a missing thing, it is closed as soon as the first information
comes in.

O er and Invitation to Treat

An offer should be distinguished from an invitation to receive offers. When a man advertises
that he has got a 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 – offers to receive offers – offers to
chaffer”.

Harvey v Facey

The plaintiff relegraphed to the defendants, writing: “Will you sell us Bumper Hall Pen?
Telegraph lowest cash price”. The defendants replied also by telegram: “Lowest price for
Bumber Hall Pen, 900 pound.” The plaintiff immediately sent their last telegram stating: “We
agree to buy Bumper Hall Pen for 900 pound asked by you.” The defendants refused to sell
the plot.

The Lordships pointed out that in their first telegram, the plaintiffs asked two questions, first, as
to the willingness to sell and, second, as to the lower price. The defendants answered only the
second, and gave only the lowest price. They reserved their answer as to the willingness to
sell. Thus, they made no offer. The last telegram of the plaintiffs was an offer to buy, but that
was never accepted by the defendants.

Catalogues and display of goods: A shopkeeper’s catalogue of prices is not an offer,

only an invitation to offer.
Announcement to hold auction: An auctioneer’s announcement that specified goods will
be sold by auction on a certain day is not an offer to hold the auction.

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Definiteness of proposal: A classified advertisement to the effect: “cocks and hens 25s
each” has been held to be not an offer to sell.
Free distribution of articles: Not a contract of sale

Acceptance – Section 2(b)

Introduction of Acceptance – Sec. 2(b)
When the person to whom the proposal is made signifies his assent thereto, the proposal is
said to be accepted. A proposal, when accepted, becomes a promise.

Thus “acceptance” is the assent given to a proposal, and it has the effect of converting the
proposal into promise.

This is another way of saying that an agreement is an accepted proposal. Every agreement, in
its ultimate analysis, is the result of a proposal from one side and its acceptance by the other.

There are three factors in Acceptance:

1. Communication to Offeror
2. Communication to Acceptor
3. When Communication is not necessary

Communication of Acceptance

ACCEPTANCE BY EXTERNAL MANIFESTATION OR OVERT ACT.

SHAH J says “An agreement does not result from a mere state of mind: intent to accept an
offer or even a mental resolve to accept an offer does not give rise to a contract. There must
be… some external manifestation of that intent by speech, writing or other act.”

Brogden v Metropolitan Railway co.

B had been supplying coal to a railway company without any formal agreement. B suggested
that a formal agreement should be drawn up. The agents of both the parties met and drew up
a draft agreement. It had some blanks when it was sent to B for his approval. He filled up the
blanks including the name of an arbitrator and then returned it to the company. The agent of
the company put the draft in his drawer and it remained there without final approval having
been signified. B kept up his supply of coals but on the new terms and also received payment
on the new terms. A dispute having arisen B refused to be bound by the agreement.
ACCEPTANCE BY CONDUCT

Mere mental assent to an offer does not conclude a contract either under the Indian Contract
Act or in English Law.

COMMUNICATION TO OFFEROR HIMSELF

Acceptance must be communicated to the offeror himself. A communication to any other

person is as ineffectual as of no communication has been made.

Caselaw: Felthouse v Bindley – Offer cannot Impose Burden of Refusal

Facts – “The plaintiff offered by means of a letter to purchase his nephew’s horse. The letter
said: “If I hear no more about the horse, I consider the horse mine at pount 33.15s”. To this
letter, no reply was sent. But the nephew told the defendant, his auctioneer not to sell the
horse as it was already sold to his uncle. The auctioneer by mistake put up the horse for action
and sold it. The plaintiff sued the auctioneer on the ground that under the contract the horse
had become his property and, therefore, defendant’s unauthorized sale amounted to
conversion. But the action failed.”

COMMUNICATION TO ACCEPTOR HIMSELF

Communication of acceptance should be from a person who has the authority to accept.
Information received from an unauthorised person is ineffective.

Caselaw: Powell v Lee

Facts – “The plaintiff was an applicant for the headmaster-ship of a school. The managers
passed a resolution appointing him, but the decision was not communicated to him. One of the
members, however, in his individual capacity informed him. The managers cancelled their
resolution and the plaintiff sued for breach of contract.”

WHEN COMMUNICATION NOT NECESSARY

In certain cases, communication of acceptance is not necessary. The offeror may inform a
particular mode of acceptance, then all that the acceptor as to do is to follow that particular
mode.

Caselaw: Carlil v Carbolic Smoke Ball

BOWEN LJ observed as: “But there is this clear gloss to be made upon that doctrine, that as
notification of acceptance is required for the benefit of the person who makes the offer, he may
dispense with notice to himself… and there can be no doubt that where the offeror expressly or
impliedly intimates a particular mode of acceptance as sufficient to make the bargain binding it
is only necessary for the other person to follow the indicated method of acceptance; and if the
person making the offer expressly or impliedly intimates in his offer that it will be sufficient to
act on the proposal without communicating acceptance of it to himself, performance of the
condition is a sufficient acceptance without notification”.

MODE OF COMMUNICATION

Acceptance should be made in prescribed manner

Acceptance has to be made in the manner prescribed or indicated by the offeror. An

acceptance given in any other manner may not be effective. particularly where the offeror
clearly insists that the acceptance shall be made in the prescribed manner. For example,

A offered to buy flour from B requesting that acceptance should be sent by the wagon which
brought the offer. B sent his acceptance by post, thinking that this would reach the offeror more
speedily. But the letter arrived after the time of the wagon. A was held to be not bound by the
acceptance.

Absolute and Unquali ed

Section 7: Acceptance Must Be Absolute
In order to convert a proposal into a promise, the acceptance must — (1) be absolute and
unqualified, (2) be expressed in some usual and reasonable manner, unless the proposal
prescribes the manner in which it is to be accepted.

EFFECT OF DEPARTURE FROM PRESCRIBED MANNER

A departure from that manner does not of itself invalidate the acceptance. A duty is cast on the
offeror to reject such acceptance within reasonable time.
1. a minor departure from the prescribed mode of communication should not upset the fact of
acceptance provided that the communication is made in an equally expeditious way.
2. for, in a case, where the offeree was told to reply by ‘by return of post’ it was said by the
Court of Exchequer Chamber that a reply sent by some other method
equally expeditious would constitute a valid acceptance.

Where no manner prescribed: reasonable and usual manner

Where no mode of acceptance is prescribed, acceptance must “be expressed in some usual
and reasonable manner”. As per Indian Contract Law, post is a reasonable mode.

WHEN CONTRACT CONCLUDED (POSTAL COMMUNICATION)

When the parties are at a distance and are contracting through post or by messengers, the
question arises when is the contract concluded.

Household Fire & Accident Insurance Co v Grant

The defendant in this case had applied for allotment of 100 shares in the plaintiff company. A
letter of allotment addressed to the defendant at his residence was posted in due time, but it
never reached the defendant. Nevertheless he was held bound by the acceptance.

SECTION 4 – COMMUNICATION WHEN COMPLETE

The only difference that the section makes is in the position of the acceptor. In England when a
letter of acceptance is posted, both the offeror and the acceptor become irrevocably bound.
But in India, the acceptor does not become bound by merely posting his acceptance. He
becomes bound only when his acceptance “comes to the knowledge of the proposer”. The gap
of time between the posting and the delivery of the acceptance can be utilised by the acceptor
for revoking his acceptance by a speedier communication which will overtake the acceptance.

Counter proposals
An acceptance containing additions, limitations, or other modifications shall be rejection of the
offer and shall constitute a counter-offer.

However, a reply to an offer which purports to be an acceptance but which contains additional
or different terms which do not materially alter the terms of the offer shall constitute an
acceptance unless the offeror promptly objects to the discrepancy; if he does not object, the
terms of the contract shall be the terms of the offer with the modifications contained in the
acceptance.
If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not
made in such manner, the proposer may, within a reasonable time after the acceptance is
communicated to him, insist that his proposal shall be accepted in the prescribed manner, and
not otherwise; but if he fails to do so, he accepts the acceptance.

 PARTIAL ACCEPTANCE

Acceptance should be of the whole of the offer. The offeree cannot accept a part of its terms
which are favourable to him and reject the rest. Such an acceptance is another kind of counter
proposal and does not bind the offeror.

INQUIRY INTO TERMS OF PROPOSAL

A mere inquiry into the terms of a proposal is not the same thing as a counter-proposal. On
acceptance of the proposal, the contract will be created on the basis of the terms and
conditions of the original proposal including arbitration clause.

ACCEPTANCE WITH CONDITION SUBSEQUENT

If an acceptance carries a condition subsequent, it may not have the effect of a counter-
proposal. Thus, where an acceptance said: “terms accepted, remit cash down Rs.25,000 by
February 5, otherwise acceptance subject to withdrawal, this was not a counter-proposal, but
an acceptance with a warning that if the money was not sent the contract would be deemed to
have been broken.

ACCEPTANCE OF COUNTER PROPOSAL

Even “where the acceptance of a proposal is not absolute and unqualified the proposer may
become bound, if, by his subsequent conduct, he indicates that he has accepted the
qualifications set up”.

Hargopal v People’s Bank of Northern India

An application for shares was made conditional on an undertaking by the bank that the
applicant would be appointed a permanent director of the local branch. The shares were
allotted to him without fulfilling the condition. The applicant accepted the position as a
shareholder by accepting dividends, filing a suit to recover it and by pledging his shares.

It was, therefore, held “that he could not content that the allotment was void on the ground of
non-fulfillment of the condition as he had by his conduct waived the conditions.

PROVISIONAL ACCEPTANCE

An acceptance is sometimes made subject to final approval. A provisional acceptance of this

kind does not ordinarily bind either party until the final approval is given.

ACCEPTANCE AND WITHDRAWAL OF TENDERS

A tender is in the same category as a quotation of prices. It is not an offer. When a tender is
approved, it is converted into a standing offer. A contract arises only when an order is placed
on the basis of the tender. These principles were laid down by the Bombay High Court in the
well-known case of Bengal Coal Co Ltd v Homee Wadia & Co.
Lapse of O er
1. Notice of revocation
2. Lapse of Time
3. By failure to accept condition precedent
4. By death or insanity of offerer

Revocation of Acceptance
Section 5: Revocation of proposals and acceptances
A proposal may be revoked at any time before the communication of its acceptance is
complete as against the proposer, but not afterwards.

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

NOTICE OF REVOCATION

Withdrawal before expiry of fixed period

Where an offeror gives the offeree an option to accept within a fixed period, he may withdraw it
even before the expiry of that period.

CASE LAW: Alfred Schonlank v. Muthunayna Chetti

The defendant left an offer to sell a quantity of indigo at the plaintiff’s office allowing him eight
days’ time to give his answer. On the 4th day however the defendant revoked his proposal.
The plaintiff accepted it on the 5th day. Holding the acceptance was useless.

Agreement to keep Offer open for Specified Period

Where the agreement to keep the offer open for a certain period of time is for some
consideration, the offeror cannot cancel it before the expiry of that period.

CASE LAW: Mountford v Scott

Communication of Revocation should be from Offerer Himself

It is necessary that the communication of revocation should be from the offeror or from his duly
authorised agent. But it has been held in the case of Dickinson v. Dodds, that it is not enough
if the offeree knows reliably that the offer has been withdrawn.

Revocation of General Offers

Where an offer of a general nature is published through newspapers, it can be withdrawn by

the same media and the revocation will be effective even if a particular person, subsequent to
the withdrawl, happened to perform its terms in ignorance of the withdrawal.

CASE LAW: Skarsm Ramanathan v NTC Ltd

Superseding proposals by Fresh Proposal

Where before acceptance a proposal is renewed in some parts of it and not in its entirety as
proposed earlier and the letter purports it to supersede the earlier communication, such
proposal is no longer available for acceptance.

CASE LAW: Banque Paribas v Citibank NA

Cancellation of allotment of land

An allotment of land was made under the order of a Development Authority.

CASE LAW: Rochees Hotels P Ltd v Jaipur Development Authority

Revocation of Bid

In the case of an auction, “the assent is signified on the part of the seller by knocking down the
hammer”. A bid may be retracted before the hammer is down.

CASE LAW: Union of India v Bhimsen Walaiti Ram

A liquor ship was knocked down to a bidder at a public auction. This was subject to the
confirmation by the Chief Commissioner who had the power before granting the licence to
inquire into the financial condition of the bidder. The bidder had to pay one-sixth part of the
price immediately and in case of any default on his part the Government had the power to re-
auction the shop and the shortfall, if any, was recoverable from the bidder. He failed to pay
one-sixth part and, therefore, the Chief Commissioner did not confirm the bid and ordered
resale. Resale realized much less than the original bid and the question of bidder’s liability to
pay the shortfall arose.

The court said: It is not disputed that the Chief Commissioner had disapproved of the bid
offered by the respondent. If the Chief Commissioner had granted sanction in favor of the
respondent, then there would have been a completed transaction and he would have been
liable for any shortfall on the resale.

LAPSE OF TIME

An offer lapses on the expiry of the time, if any, fixed for acceptance. Where an offer says that
it shall remain open for acceptance up to a certain date, it has to be accepted within that date.
For example, where an offer was to last until the end of March and the offeree sent a telegram
accepting the offer on 28th March which was received by the offeror on 30th March, it was held
that the option was duly exercised.

FAILURE TO ACCEPT CONDITION PRECEDENT