Contract Law I covers sections 1-75 of the Indian Contract Act, 1872.

Notes for Contract Law – Unit I

Formation of Contract
Meaning, Nature and Scope of Contract
Offer / Proposal: Definition, Communication, Revocation, General/ Specific Offer
Invitation to Treat
Acceptance: Definition, Communication, Revocation, Tenders /Auctions
Effect of Void, Voidable, Valid, Illegal, Unlawful Agreements
Standard Form of Contract
Online Contracts

We can divide sections 1-75 into three major topics – The creation of the Contract, its
performance and enforceability by the Court. Further, we can divide the Creation of the
Contract into three sub-topics – promise, agreement and contract. In other words, we can say,
before a contract is created, three aforementioned stages are involved in the creation of a valid
contract.
Promise: When a proposal is accepted, it becomes a promise. [Section 2(b)]
Essentials of promise:
1) Two or more parties
2) Proposal - when a person signifies to another his willingness of doing or omitting
to do something with a view to obtain other’s assent. [Section 2(a)]
3) Acceptance - when the person to whom the proposal is made signifies his assent for
the same thing in the same sense as proposed by the offeror. [Section 2(b)]
4) Communication of Proposal and Acceptance
Offer [Section 2 (a)]
Offer is the foundation of any agreement. “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.” The person who makes an offer is called
the “Offeror” or “Promisor” and the person to whom the offer is made is called the Offeree” or
“Promisee”.
For example Mr. A says to Mr. B, “Will you purchase my car for Rs.1,00,000?” In this case,
Mr. A is making an offer to Mr. B. Here A is the offeror and B is the offeree.
Until the offer is communicated, it cannot be accepted. An offer accepted without the
knowledge of the terms of the offer does not confer any legal rights on the acceptor. For
example, A’s nephew has absconded from his home. He sent his servant to trace his missing
nephew. When the servant had left, A then announced that anybody who discovered the
missing boy, would be given a reward of ₹500. The servant discovered the missing boy without
knowing the reward. When the servant came to know about the reward, he brought an action
against A to recover the same. But his action failed. It was held that the servant was not entitled
to the reward because he did not know about the offer when they discovered the missing boy –
Lalman Shukla v. Gauri Datt (1913) All LJ 489.
Acceptance cannot be presumed from silence. Acceptance is valid only if it is communicated
to the offeror.
Offer must be distinguished from an invitation to offer or an invitation to treat. For example,
a Menu card of a restaurant is an invitation to put in an offer. Price – tags attached to the goods
displayed in any showroom or supermarket are also an invitation to the proposal. If the
salesman or the cashier does not accept the price, or the cashier does not accept the price, the
interested buyer cannot compel him to sell, if he wants to buy it, he must make a proposal. A
job or an advertisement for auction sale is merely an invitation to make an offer and not an
offer for sale. Therefore, an advertisement for an auction can be withdrawn without any notice.
The persons going to the auction cannot claim for loss of time and expenses if the advertisement
for the auction is withdrawn.
In Pharmaceutical Society of Great Britain v. Boots Cash Chemists Southern Ltd., a
shopkeeper makes an invitation to treat, against which the customer makes an offer, to which
the shopkeeper has the discretion to accept or deny. The shopkeeper may reply that he doesn’t
have enough stock and therefore may not sell.
For example, the company advertised that a reward of Rs.100 would be given to any person
who would suffer from influenza after using the medicine (Smoke balls) made by the company
according to the printed directions. One lady, Mrs, Carlill, purchased and used the medicine
according to the printed directions of the company but suffered from influenza, she filed a suit
to recover the reward of Rs.100. The court held that there was a contract as she had accepted a
general offer by using the medicine in the prescribed manner and as such as entitled to recover
the reward from the company - Carlill v. Carbilic Smoke Ball Co. 1893.

A standing offer thus can be revoked or withdrawn before the order has been placed. The
acceptance of a tender may result in different types of agreements depending upon the terms
of the tender notice (Union of India v. Maddala Thathiah AIR 1966 SC 1724).
In Percival Ltd. v. London County Council Asylums and Mental deficiency
Committee, Plaintiff advertised tenders for the supply of goods. The defendant took the tender
in which he had to supply to the company various special articles for 12 months. In between
this 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.
An offer may come to an end in any of the following ways stated in Section 6:
1. By communication of notice of revocation: An offer may come to an end by
communication of notice of revocation by the offeror. It may be noted that an offer can
be revoked only before its acceptance is complete for the offeror. In other words, an
offeror can revoke his offer at any time before he becomes bound by it. Thus, the
communication of revocation of the offer should reach the offeree before the acceptance
is communicated.
2. By lapse of time: Where time is fixed for the acceptance of the offer, and it is not
accepted within the given time, the offer comes to an end automatically on the expiry
of the fixed time. Where no time for acceptance is prescribed, the offer has to be
accepted within a reasonable time. The offer lapses if it is not accepted within that time.
The term ‘reasonable time’ will depend upon the facts and circumstances of each case.
3. By failure to accept condition precedent: Where, the offer requires that some
condition must be fulfilled before the acceptance of the offer, the offer lapses if it is
accepted without fulfilling the condition.
4. By the death or insanity of the offeror: Where, the offeror dies or becomes, insane,
the offer comes to an end if the fact of his death or insanity comes to the knowledge of
the acceptor before he makes his acceptance. But if the offer is accepted in ignorance
of the fact of death or insanity of the offeror, the acceptance is valid. This will result in
a valid contract, and legal representatives of the deceased offeror shall be bound by the
contract. On the death of the offeree before acceptance, the offer also comes to an end
by operation of law.
5. By counter – offer by the offeree: Where, a counter – offer is made by the offeree,
and then the original offer automatically comes to an end, as the counter – offer amounts
to rejections of the original offer.
6. By not accepting the offer, according to the prescribed or usual mode: Where
some manner of acceptance is prescribed in the offer, the offeror can revoke the offer
if it is not accepted according to the prescribed manner.
7. By rejection – where the offeree rejects the offer, the offer comes to an end. Once
the offeree rejects the offer, he cannot revive the offer by subsequently attempting to
accept it. The rejection of an offer may be expressed or implied.
8. By change in the law – it makes the offer illegal or incapable of performance.

Acceptance [Section 2(b)]

When the person to whom the proposal is made, signifies his assent thereto, the proposal is
said to be accepted.
1. Acceptance must be absolute and unqualified – For example, A offers to sell his house to
B for ₹ two lakhs. B accepts the offer and promises to pay the price in four installments. This
is not to pay the acceptance as the acceptance is with variation in the terms of the offer.
2. Acceptance must be communicated – there is no requirement for communication of
acceptance of a general offer.
3. Mode of acceptance - it must be accepted in the manner prescribed by the offeror. If no
mode is prescribed, then it must be in some usual and reasonable manner. If there is a deviation
in the communication of an acceptance of an offer, the offeror may reject such acceptance by
sending notice within a reasonable time. If the offeror doesn’t send notice or rejection, he
accepted the acceptance of the offer. Example: A offers B and indicates that the acceptance be
given by telegram. B sends his acceptance by ordinary post. It is a valid acceptance unless A
insists for acceptance in the prescribed manner.
4. Acceptance must come from the offeree – For example, A applied for the headmastership
of a school. He was selected by the appointing authority but the decision was not communicated
to him. However, one of the members in his capacity informed him about the selection.
Subsequently, the appointing authority cancelled its decision. A sued the school for breach of
contract. The Court rejected the A’s action and held that there was no notice of acceptance.
“Information by an unauthorized person is as insufficient as overhearing from behind the
door” – Powell v. Lee (1908).
5. Acceptance must be communicated to the offeror
6. Time limit for acceptance – if the offer prescribes a time limit, it must be accepted within
a specified time. If the offer does not prescribe a time limit, it must be accepted within a
reasonable time.
7. Acceptance of the offer may be expressed, implied, or by a performance
8. Mere silence is not acceptance of the offer – for example, A offers to B to buy his house
for ₹5 lakhs and writes “If I hear no more about it within a week, I shall presume the house is
mine for ₹ 5 lakhs. “B does not respond. Here, no contract is concluded between A and B.
But where the offeree agrees that non–refusal by him within the specified time shall amount to
acceptance of an offer. When there is a custom or usage of trade which specified that silence
shall amount to acceptance.
When is the communication of acceptance complete?
When the parties enter into an agreement face to face, the contract is concluded when
acceptance is communicated. Jurisdiction is the place where offer and acceptance were done.
But an exception has been given u/s 4. When the parties are at a distant place and are
contracting through the post, the proposer becomes bound as soon as acceptance was put in the
course of transmission so as to become out of the control of the acceptor. But the acceptor
becomes bound only when the communication of acceptance comes to the knowledge of the
proposer.
Under both Indian and English laws, a contract is made at a place where a letter of acceptance
is posted. However, under English Contract Law, when a letter of acceptance is posted, both
the offeror and acceptor become bound.
In Bhagwandas Kedia v. Girdharilal and Co. AIR 19666 SC 543 it was held that in case of
instantaneous communication, the contract is complete only when the acceptance is received
(clearly heard or understood) by the offeror and the offer is deemed to be made at the place
where acceptance is received or heard.

Revocation how made? [Section 4 &5]

Offer may be revoked at any time before the communication of its acceptance is complete, as
against the proposer, but not afterwards. For example, U sends a letter to Y proposing to sell
his land. Y sends his acceptance by post. U can revoke the offer at any time before or at the
moment when Y posts his letter of acceptance, but not afterwards.
Acceptance may be revoked at any time before the communication of the acceptor, but not
afterwards. For example, T sends to S by post, an offer to sell his cycle. S sends his acceptance
via post, S could revoke his acceptance, up to any time before or at the moment when he posts
his letter of acceptance, but not afterwards.
When communication of revocation is complete [Sec.4]
- As against the offeror: When it is put into a course of transmission to the person to
whom it is made, so as to be out of the power of the person who makes it. For example,
S proposes to H by letter. H sends his acceptance by letter. Suddenly, S sends a telegram
revoking his offer. Revocation is complete as against S when the telegram is dispatched;
H’s revocation of acceptance is complete when S receives a such telegram.
- As against the Offeree: When it comes to his knowledge. For example, Communication
of revocation is complete only when H receives the telegram. When H revokes his
acceptance, it is complete when he dispatches the telegram.

Agreement = Promise or set of promises (offer + acceptance) + Consideration (for all the
parties)
Section 2(e) defines an agreement as ‘every promise and every set of promises, forming the
consideration for each other, is an agreement’.
Section 2(d) provides “when, at the desire of the promisor, the promisee or any other person
has done or abstained from doing, or does or abstains from doing, or promises to do or to
abstain from doing, something, such act or abstinence or promise is called a consideration for
the promise.”
Contract
Section 2(h) provides “An agreement enforceable by law is a contract.” Hence, only the
enforceable agreements are contracts. It is said, that all the contracts are an agreement but all
the agreements are not contracts.
Anson has defined a contract as “A contract is legally binding agreement between two or more
persons by which rights are acquired by one or more to acts or forbearances on the part of the
others(s).” He further stated, “Law of contract is intended to ensure that what a man has led
to except shall come to pass, that what has been promised to him shall be performed.”
Pollock – “every agreement and promise enforceable at law is contract.”
The contract is a narrow term than an agreement. Hence, all contracts are agreement but all
agreements are not contract.
Contract = Agreement + Legal enforceability
Enforceability means if the contractual obligation was not performed the parties can approach
the court for remedies. Hence, the enforceability of the contract requires the following
ingredients:
1) Intention to Create Legal Obligation – when an offer is made with an intention to create
legal obligation it becomes a valid offer to create a contract. If it is not made with a legal
intention to create a contractual obligation, then it remains a mere social promise.
A and B agree to go to a movie. A does not turn in resulting in a loss of B’s time. B cannot
claim any damages from B since the agreement to watch a movie is a domestic agreement
which does not result in a contract. In the case of the social agreement, there is no intention to
create a legal relationship and there is no contract (Balfour v. Balfour). In the case of
commercial agreements, the law presumes that the parties had the intention to create legal
relations.
In Balfour v. Balfour [1919] 2 KB 571, Mr. Balfour promised to pay his wife £30/ month as
she stayed in England for medical reasons. When he failed to pay, Mrs. Balfour sued him. Her
action failed because there was no intention to create a legally binding agreement between Mr.
and Mrs. Balfour. A contract cannot be made without a proper indication about the legal rights
and obligations of the parties to the contract. So, if this were to be a contract then the wife
would have had a right to receive payment and the husband would have had the obligation to
pay his wife.
Jones v. Padavattan (1969) – daughter acting on her mother’s promise left her service and
went to another country for education. The mother undertook all the expenses. For five long
years, the daughter could not complete her studies. Differences arose and hence mother stopped
the payment. The court held that the contract has arisen.
2) Free consent - the parties must agree upon the same thing in the same sense i.e. there should
be consensus – ad – idem.
Moreover, consent is said to be free, when it is free from coercion (Section 15), Undue
influence (Section 16), Fraud (Section 17), Misrepresentation (Section 18) and Mistake
(Sections 20, 21, 22), the consent is said to be free.
3) Capacity of the parties to contract (Section 10)
Sections 11 and 12 lay down that the competent parties are persons who have attained the age
of majority. Minors' contract has been dealt in the landmark judgement of Mohori Bibee v.
Dharmodas Ghose ILR (1903) 30 Cal 539 (Pc).
The parties to a contract must have the capacity (legal ability) to make a valid contract.
Section 11 specify that every person is competent to contract provided
i) Is of the age of majority according to the Law which he is subject, and
ii) Who is of sound mind and
iii) Is not disqualified from contracting by any law to which he is subject.
A person of an unsound mind can enter into a contract during his lucid interval. An alien enemy,
foreign sovereigns and accredited representative of a foreign state. Insolvents and convicts are
not competent to contract.
4) Lawful consideration and Lawful object or subject matter (Section 10)
Section 23 lays down that the consideration and object are lawful unless it is forbidden by law
or defeat provisions of any law or is fraudulent or involve injury to person or property or are
violative of public health, morality, peace and order.
Consideration must not be unlawful, immoral or opposed to public policy.
5) Agreement should not expressly be declared void– the following agreements have been
declared null and void:
6) Agreement should be capable of performance -

On the basis of creation

a) Express contract: A contract made by a word spoken or written. According to sec 9, so far
as the proposal or acceptance of any promise is made in words, the promise is said to be express.
Example: A says to B ‘will you purchase my bike for Rs.20,000?’ B says to A “Yes”.
b) Implied contract: A contract inferred by the conduct of a person or the circumstances of the
case. By implies contract means implied by law (i.e.) the law implied a contract through parties
never intended. According to sec 9 in so far as such proposed or acceptance is made otherwise
than in words, the promise is said to be implied.
Example: A stops a taxi by waving his hand and takes a seat. There is an implied contract that
A will pay the fare.
c) Tacit contract: A contract is said to be tacit when it has to be inferred from the conduct of
the parties. For example, obtaining cash through an automatic teller machine, sale by fall
hammer of an auction sale.
d) Quasi Contracts are contracts which are created. Neither by a word spoken nor written
nor by the conduct of the parties. But these are created by the law.
Example: If A leaves his goods at B’s shop by mistake, then it is for B to return the goods or
to compensate the price.
e). e–Contract: An e-contract is one, which is entered into between two parties via the internet.
On the basis of validity
b) Void contract [Sections 11, 20, 23-30, 32, 35, 56] defined under (2(j): a contract which
ceases to be enforceable by law because void, when of, ceased to be enforceable when both
parties to an agreement are:
 Minors’ agreements
 Under a mistake of facts [Section 20]
 Agreements void for uncertainty - A agreed to pay Rs.5 lakh to B for the ultra-modern
decoration of his drawing room. The agreement is void because the meaning of the
term “ultra-modern” is not certain.
 Consideration or object of an agreement is unlawful [Section 23 & 24]
 Agreements without consideration with certain exceptions [Section 25]
 Agreement in restrain of marriage [Section 26]
 Restraint of trade [Section 27] - every agreement by which a person is restrained
from exercising a lawful profession, trade or business, is to that extent void. The
entire contract will not be declared void. E.g., if a contract contains a “non-compete
clause”, which restricts a person from carrying out a trade, then only the non-compete
clause will be void and not the entire contract. The doctrine of severability will be
used to sever the void part from the rest of the agreement.
 Restrain legal proceeding [Section 28] – An agreement by which any party to the
contract is restricted in enforcing their rights, or which limits the time within which
he may enforce his legal rights, is void. But an agreement which provides for
arbitration when a dispute arises, then that clause is not void.
 Agreement to do uncertain thing [Section 29] – a contract is said to be certain if its
terms are capable of being understood, in the sense, in it has been intended to be
understood, by the promisor, and are not ambiguous and vague. For example, A
agrees to sell B 100 tons of oil, but without being satisfied about the quality and kind
of oil. Such an agreement is uncertain and void. An agreement which provides for
the future fixation of price either by the parties themselves or by a third party is
capable of being made certain and is not void under section 29.
 Agreement by way of wager [Section 30] Wagering agreements are void and no suit
shall be brought to recover anything that has been won by a wager. According to Sir
William Anson, a wager is “a promise to give money or money’s worth upon the
determination or ascertainment of an uncertain event.”
The literal meaning of the word “wager” is a “bet”. Wagering agreements are nothing
but ordinary betting agreements. For example, A and B agree that if England’s
Cricket Team wins the test match, A will pay B Rs.100 and if it loses B will pay
Rs.100 to A. This is a wagering agreement and nothing can be recovered by the
winning party under the agreement.
A wagering agreement is one whose outcome is based on a future uncertain event and
upon the happening of that uncertain event one party will gain and the other party
will lose and the loser shall pay the winner a sum of money or any other stake. Such
parties shall not have any other interest other than winning or losing the bet. It must
be noted that an insurance contract is not a wagering contract, an insurance contract
falls under contingent contracts.
There are certain exemptions to it which are as follows:
1. Showcase of talent is not a wager – but if it depends upon mere possibility then it
will amount to a wager. Mere prize competitions based on merit do not amount to
wager.
2. Share market shall not amount to wager.
3. Horse race competition - the government may authorize certain horse race
competitions if the local laws permit it and if the people contribute a sum of ₹500 or
more towards the prize money which is to be given to the winner of the horse race,
then it will not consider a wager.
4. Insurance contracts are not wagering contracts; an insurance contract falls under
contingent contracts.
 Agreements contingent on an impossible event
 Agreements to do impossible acts - an agreement to do an act, impossible in itself
cannot be enforced. For example - A agrees with B to discover treasure by magic.
The agreement is void because the act in itself is impossible to be performed from
the very beginning.

c) Voidable contract defined under 2(i): an agreement which is enforceable by law at the
option of one or more of the parties is called a voidable contract. From the inception of section
19 on grounds of coercion, fraud, misrepresentation; u/s 19A – undue influence; u/s 55 – failure
to perform at a time fixed; u/s 53 impossibility created by an act of the party.
The party whose consent was so taken only that party can file the suit for voidability. It must
be filed within a reasonable time.

d) Unenforceable contract: where a contract is good in substance but because of some

technical defect i.e., absence in writing barred by imitation etc one or both the parties cannot
sue upon but is described as an unenforceable contract. Example: Writing registration or
stamping. Example: An agreement which is required to be stamped will be unenforceable if
the same is not stamped at all or is under-stamped.
Difference between Void and Voidable Contract
Void Contract Voidable contract
No legal remedy The aggrieved party has a remedy to cancel
the contract
Damages are not payable Damages can be demanded in certain cases

On the basis of executions

a) Executed contract: A contract in which both parties have fulfilled their obligations under
the contract. Example: A contracts to buy a car from B by paying cash, and B instantly delivers
his car.
b) Executory contract: A contract in which both parties have still fulfilled their obligations.
Example: D agrees to buy V’s cycle by promising to pay cash on 15th July. V agrees to deliver
the cycle on 20th July.
c) Partly executed and partly executory: A contract in which one of the parties has fulfilled
his obligation but the other party is yet to fulfill his obligation. Example: A sells his car to B
and A has delivered the car but B is yet to pay the price. For A, it is executed contract whereas
it is an executory contract on the part of B since the price is yet to be paid.
On the basis of liability for performance:
a) Bilateral contract: A contract in which both parties commit to perform their respective
promises is called a bilateral contract. Example: A offers to sell his fiat car to B for Rs.1,00,000
on acceptance of A’s offer by B, there is a promise by A to Sell the car and there is a promise
by B to purchase the car there are two promises.
b) Unilateral contract: A unilateral contract is a one-sided contract in which only one party
has to perform his promise or obligation party has to perform his promise or obligation to do
or forbear. Example: A wants to get his room painted. He offers Rs.500 to B for this purpose
B says to A “if I have spare time on next Sunday, I will paint your room”. There is a promise
by A to pay Rs 500 to B. If B is able to spare time to paint A’s room. However, there is no
promise by B to Paint the house. There is only one promise.

Other types of the Contract

a) Standard Form of Contract
Standard Form of contract are standardized contract that contains a large number of terms and
conditions in fine print, which restrict and often exclude liability under the contract. A standard
form contract is a contract between two parties that does not allow for negotiation, i.e., take it
or leave it. An insurance policy, shares or a railway ticket are a few examples of such contracts.
Given the unequal bargaining power of the two parties, the courts and the legislature have
evolved certain rules with respect to the Standard form of Contract:
1) Terms of the contract should be reasonable and brought to the notice of the acceptor;
2) No exemption is allowed to permit non-compliance with the basic contractual obligation –
for example, a dry cleaner has to be answerable, even if the contract contains all sorts of
exemption clauses, if the cloth is altogether lost.
In Henderson v. Stevenson, the plaintiff bought a steamer ticket on the face of which was these
words only: “Dublin to Whitehaven”; on the back were printed certain conditions one of which
excluded the liability of the company for loss, injury or delay to the passenger or his luggage.
The plaintiff did not see the back of the ticket, nor was there any indication on the face about
the conditions on the back. The plaintiff’s luggage was lost in the shipwreck caused by the fault
of the company’s servants. This was laid down by the House of Lords that the plaintiff is
entitled to recover the loss which he suffered from the company in spite of the exemption
clauses.
This gives a unique opportunity to the giant company to exploit the weakness of the individual
by imposing upon him terms which often look like a kind of private legislation and which may
go to the extent of exempting the company from all liability under the contract. The battle
against abuse has fallen to the courts. The courts have found it very difficult to come to the
rescue of the weaker party. Indian Airline v. Madhuri Chowdhury (AIR 1965 Cal 252)
highlights the inadequacy of the Indian Contract Act in providing relief to the weaker party
against the exemption clauses.
Harvey v. Facey
Harvey was interested in buying a Jamaican property owned by Facey. He sent Facey a
telegram stating “Will you sell us Bumper Hall Pen? Telegraph lowest cash price – answer
paid.” Facey responded stating “Bumper Hall Pen £900”. Harvey responded stating that he
would accept £900 and asking Facey to send the title deeds. Facey then stated he did not want
to sell. Harvey sued, stating that the telegram was an offer and he had accepted, therefore there
was a binding contract.
Decision – Telegram was an invitation to treat, not a valid offer. Therefore, no valid contract
existed. The telegram only advised of the price, it did not explain other terms or information
and therefore could not create any legal obligation. Harvey’s telegram “accepting” the £900
was instead an offer which Facey could either accept or reject. He rejected it so there was no
contract created.
Tinn v. Hoffman (1873) 29 LT 271
Defendant, Mr Hoffman wrote to the complainant, Mr Tinn with an offer to sell him 800 tons
of iron for the price of 69s per ton. He requested a reply to this offer by post. On the same day,
without knowing of this offer, Mr Tin also wrote to Mr Hoffman. He offered to buy the iron
on similar terms. This case concerned the validity of these two cross-offers.
Issues - whether there was a valid contract between Mr Tinn and Mr Hoffman for the sale of
the iron. There was also the issue if acceptance had to be by post for it to be valid, as this was
specified in the offer.
It was held that there was no contract between Mr Tinn and Mr Hoffman for the iron. The cross
offers were made simultaneously and without knowledge of one another; this was not a contract
that would bind the parties for the iron. There is a difference between a cross offer and a counter
offer. In order to form a valid contract, there must be communication that consists of an offer
and acceptance. There was no acceptance by post, as had been stated in the offer. The court
also said that while post had been indicated in the offer, another equally fast method would
have been successful, such as a telegram or verbal message.
Felthouse v. Bindley
The complainant, Paul Felthouse, had a conversation with his nephew, John Felthouse, about
buying his horse. After their discussion, the uncle replied by letter stating that if he didn’t hear
anymore from his nephew concerning the horse, he would consider acceptance of the order
done and he would own the horse. His nephew did not reply to this letter and was busy at
auctions. The defendant, Mr Bindley, ran the auctions and the nephew advised him not to sell
the horse. However, by accident, he ended up selling the horse to someone else.
Issues - Paul Felthouse sued Mr Bindley in the tort of conversion, with it necessary to show
that the horse was his property, in order to prove there was a valid contract. Mr Bindley argued
there was no valid contract for the horse since the nephew had not communicated his
acceptance of the complainant’s offer. The issue was whether silence or a failure to reject an
offer amounted to acceptance.
Decision- there was no contract for the horse between the complainant and his nephew. There
had not been an acceptance of the offer; silence did not amount to acceptance and an obligation
cannot be imposed by another. Any acceptance of an offer must be communicated clearly.
Although the nephew had intended to sell the horse to the complainant and showed this interest,
there was no contract of sale. Thus, the nephew’s failure to respond to the complainant did not
amount to an acceptance of his offer.

Entores v. Miles Far East Corp [1955] 2 QB 327

The complainants, Entores, a company based in London had sent an offer to purchase 100 tons
of copper cathodes to the defendants, Miles Far East Corp. Their company was based in
Amsterdam and this offer was communicated by Telex, a form of instantaneous
communication. The Dutch company sent an acceptance of this offer by Telex to the
complainants. When the contract was not fulfilled, the complainants tried to sue the defendants
for damages.
Whether the action for damages should arise in English or Dutch law, the court had to decide
the moment of acceptance of the contract. If it was when the contract acceptance was sent,
damages would be dealt with under Dutch law. If acceptance was when it was received, then it
would be under English law.
The court held that the contract and damages were to be decided by English law. It was stated
that the postal rule did not apply to instantaneous communications. Since Telex was a form of
instant messaging, the normal postal rule of acceptance would not apply and instead,
acceptance would be when the message by Telex was received. Thus, the contract was created
in London. This general principle on acceptance was held to apply to all forms of instantaneous
communication methods. Acceptance via these forms of communication had to be clear before
any contract is created.
As a result, in the case of instantaneous communications (including by telex) acceptance occurs
when and where received. The rule in relation to instantaneous communications is encapsulated
in this passage by Lord Justice Denning:
"My conclusion is that the rule about instantaneous communications between the
parties is different from the rule about the post. The contract is only complete when the
acceptance is received by the offeror; and the contract is made at the place where the
acceptance is received."
When a contract is made by post it is clear law throughout the common law countries that the
acceptance is complete as soon as the letter is put into the post box, and that is the place where
the contract is made. But there is no clear rule about contracts made by telephone or by Telex.
Communications by these means are virtually instantaneous and stand on a different footing.