Page 9 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes 3. Acceptance should be communicated

4. Acceptance should be according to the prescribed form
5. Acceptance must be given before the offer lapses or is revoked
6. Provisional acceptance is no acceptance
Under Indian law communication of acceptance is complete as against the proposer when it is
put in a course of transmission to him so as to be out of the acceptor; as against the acceptor when
it comes to the knowledge of proposer
Thus according to Sir William Anson “an acceptance is to offer what a lighted match is to a train
of gun powder”. It produces something which cannot be recalled or undone. But there is a choice
to the man who had the train to remove it before the match is applied.

Example: A shopkeeper received an order from a customer – a household lady. He
executed the order by sending the goods. The customer’s order for goods constitutes the offer
which was accepted by the shopkeeper by sending the goods. It is a case of acceptance by
conduct. Here, the shopkeeper is accepting the offer by the performance of the act (i.e., sending
the goods).

Difference between Offer and Invitation to Offer

An offer is to be distinguished from an invitation to offer. A prospective shareholder by fi lling up
a share application form, usually attached to the prospectus, is making the offer. An auctioneer
at the time of auction inviting offers from the bidders is not making an offer. The price lists,
catalogues and inviting tenders, restaurants menu cards, ATM, railways time table and quotations
are mere invitations to offer. Likewise a display of goods with a price tag on them in a shop
window is construed an invitation to offer and not an offer to sell.

Task M agreed on Monday to sell his property to N by a written agreement which
stated that ‘this offer to be left over until Saturday 10 AM’. In the meantime, on Wednesday
M enters into a contract to sell the property to O.N. who was sitting in the next room, hears
about the deal between M and O. On Friday, N accepts the offer and delivers to M, the
letter of acceptance. Is N’s acceptance valid? Give reasons.
[Hint: N’s acceptance is valid; the acceptance being made before revocation of the offer by
M].

1.1.2 Privity of Contract

As a contract is entered into by two or more persons thereby creating rights and obligations for
them, it is a party to the contract only who can enforce his rights as against the other party (i.e.,
the promisor). The basic principle underlying law of contracts is that a stranger to a contract
cannot maintain a suit for a remedy. The law entitles only those who are parties to the contract

to file suits for exercising their rights. This is known as ‘privity of contract’. This rule can be
traced to the fact that the law of contracts creates jus in personam as distinguished from jus in rem.
Therefore, a stranger to a contract cannot maintain a suit.

Example: A is indebted to B. A sells certain goods to C.C gives a promise to A to pay
off A’s debt to B. In case C fails to pay, B has no right to sue C, being a stranger to the contract
between C and A. In other words C is not in privity with B. However, C is in privity with A.

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