Business Laws · Indian Regulatory Framework

Offer, Acceptance and Consideration: CA Foundation Business Laws

Updated 4 October 2026

An offer is a proposal to do or not do something to get the other party's assent. Acceptance of that offer makes a promise. Consideration is the price or return for the promise. To solve questions, identify the offer, check communication and acceptance, test the consideration, then conclude.

Understand Offer, Acceptance and Consideration

A contract starts with a proposal (offer). Under the Indian Contract Act, 1872, a person makes a proposal when they show willingness to do or abstain from doing something, in order to get the other person's assent. The person making it is the offeror (promisor). The person accepting is the offeree (promisee).

An offer must be different from an invitation to offer. A shop price tag, a catalogue, an auction call for bids and a company prospectus only invite others to make offers. The real offer comes from the customer or bidder. Test it this way: did the person intend to be bound the moment the other side says yes? If yes, it is an offer.

Acceptance must be absolute and unqualified, and given in the prescribed or usual way. It can be given only by the person to whom the offer was made, and only while the offer is still alive. A counter-offer or a conditional reply is not acceptance. It rejects the original offer and creates a new one. Silence cannot be imposed as acceptance by the offeror. Communication of acceptance is complete as against the offeror when it is put in a course of transmission out of the acceptor's power to recall. It is complete as against the acceptor when it comes to the offeror's knowledge. A proposal can be revoked at any time before acceptance is complete as against the proposer, but not after.

Consideration is what each side gives or promises in return. In Indian law it may be an act, abstinence or a promise by the promisor or any other person, at the desire of the promisor. It may be past, present or future. It must be real and lawful, but need not be adequate. A promise without consideration is generally void, with specific exceptions.

The general rule of privity of contract is that only parties to a contract can sue on it. A stranger to the contract cannot enforce it, even if they benefit. A stranger to the consideration, however, can sue if they are a party to the contract. There are recognised exceptions, listed below.

Key rules to remember

Offer vs invitation to offer: Offer = intention to be bound on acceptance; Invitation = only inviting others to make offers; Examples of invitations: price tags, catalogues, auction calls, prospectus, quotations without intent to be bound.
Valid acceptance: Absolute + unqualified + by offeree + in prescribed or usual mode + before offer lapses or is revoked + communicated; A conditional acceptance or counter-offer destroys the original offer.
Completion of communication of acceptance: Against offeror: when put in course of transmission beyond acceptor's control. Against acceptor: when it reaches offeror's knowledge; Use this to decide timing of the contract in postal or electronic cases.
Completion of communication of revocation: Against revoker: when put in course of transmission beyond their control. Against receiver: when it comes to their knowledge; An offer can be revoked at any time before acceptance is complete against the offeror.
Ways an offer ends: Revocation, lapse of time, failure of condition, death or insanity of offeror (if acceptor knew), rejection or counter-offer, failure to accept in prescribed manner; Remember these to test whether acceptance came too late.
Consideration rule: At the desire of promisor + may move from promisee or any other person + past, present or future + real and lawful + need not be adequate; Without consideration, an agreement is void unless an exception applies.
Exceptions to 'no consideration, no contract': Natural love and affection (in writing, registered, between near relations); compensation for past voluntary service; promise to pay a time-barred debt (in writing, signed); completed gift; creation of agency (s.185); The first three are in s.25. Completed gift and agency are also accepted exceptions. Quote the condition with each exception.
Privity of contract: exceptions: Beneficiary under a trust; provision for marriage expenses or maintenance under a family arrangement; assignment of contract; acknowledgment or estoppel; covenants running with land; agency (principal can enforce); A stranger can sue in these cases despite not being a party.

How to solve Offer, Acceptance and Consideration questions

Case-study answers in Business Laws earn marks for a clear structure: provision, facts, conclusion. Use the same flow every time.

1Underline the parties, their communications and the dates or order of events.
2Classify each statement: offer, invitation to offer, counter-offer, acceptance or revocation.
3State the rule in one or two plain sentences, for example that acceptance must be absolute and communicated.
4Apply the rule to the facts. Check who made the statement, whether it was communicated, and whether the offer was still open.
5If consideration is in question, test it: was it at the desire of the promisor, lawful and real, and does an exception apply?
6If a third party is suing, apply the privity rule and check the exceptions.
7Write a one-line conclusion stating whether a valid contract exists and who can enforce it.

Quickest way: Timeline and tick-box method

When to use it: Use this for short case studies when you have about 5 to 6 minutes per question.

Draw a quick timeline of events on rough paper with arrows for each message.
Mark each message as O (offer), I (invitation), C (counter-offer), A (acceptance) or R (revocation).
Tick the acceptance checklist: absolute, by offeree, in time, communicated, before revocation.
Tick the consideration checklist: desire of promisor, lawful, exception if gratuitous.
Write the answer in three lines: rule, application, conclusion.

Common mistakes in Offer, Acceptance and Consideration

Treating a price tag, catalogue or auction bid call as an offer.
It looks like a proposal in everyday life.
Fix: Ask who has the power to conclude the deal by saying yes. Display and invitations only invite offers; the customer makes the offer.
Treating a conditional or varied reply as acceptance.
Students focus on the word 'accept' in the reply.
Fix: Check if the reply adds any new term. If it does, it is a counter-offer and the original offer is gone.
Saying consideration must be adequate.
Confusion with the idea of fairness.
Fix: Write that consideration must be real and lawful but need not be adequate. Courts do not weigh its value.
Confusing a stranger to the contract with a stranger to the consideration.
Both phrases sound similar.
Fix: In India, a party to the contract can sue even if consideration came from someone else. A person who is not a party to the contract cannot sue, unless an exception applies.
Getting the timing of revocation wrong.
Students mix up when communication is complete for each side.
Fix: Revocation or acceptance is effective against the sender once posted beyond recall, and against the receiver once they know. Apply the right side of the rule to the person in the question.
Forgetting the conditions attached to exceptions to consideration.
Students memorise only the list.
Fix: Note the condition with each: love and affection needs a written, registered promise between near relations, time-barred debt needs a signed written promise, and past service must be voluntary and for the promisor.

Worked examples

Example 1

Ravi displays a laptop in his shop window with a tag of ₹45,000. Meena enters, offers ₹45,000 and asks for the laptop. Ravi refuses to sell, saying the tag was a mistake. Meena claims a contract exists. Advise.

Show the solution

Rule: a display of goods with a price is an invitation to offer, not an offer.
Application: the tag only invited customers to make offers. Meena made the offer when she tendered ₹45,000 and asked for the laptop.
Ravi had not yet accepted. He is free to accept or refuse Meena's offer.
Since there was no acceptance, no contract was concluded.

Answer: There is no contract. The price tag was an invitation to offer, Meena's request was the offer, and Ravi may lawfully refuse to accept it.

Example 2

A offers by letter to sell his car to B for ₹2,00,000. B posts a letter of acceptance on Monday. Later on Monday, after the letter is posted, A sends a telegram revoking the offer. The telegram reaches B on Tuesday. B's letter reaches A on Wednesday. Is there a contract?

Show the solution

Rule: acceptance is complete as against the offeror when it is put in course of transmission beyond the acceptor's power to recall. It does not matter when the letter actually reaches A.
Rule: an offer may be revoked only before acceptance is complete as against the offeror. Revocation is complete against the receiver when it reaches their knowledge.
Application: B posted the acceptance on Monday, so acceptance was complete as against A on Monday. A was bound from that moment.
A's revocation was sent after that point, so it came too late. Its arrival on Tuesday does not change this.
Acceptance is complete as against B only when it reaches A, which is Wednesday. So B could not have been bound earlier than that. This protects B, not A.
Therefore the offer was accepted before it was validly revoked.

Answer: A valid contract exists. B's acceptance became complete against A when it was posted on Monday, so A's later revocation is ineffective.

Exam tips

Always begin with the rule in one line before applying facts. Examiners award marks for the provision.
Write the conditions of each exception to consideration. A bare list loses marks.
For communication questions, state clearly whose position you are analysing: the sender or the receiver.
Never name a case unless you are certain of it. A correct rule applied to the facts scores well without one.
End every case answer with a clear conclusion in one sentence.

Practice questions from Indian Regulatory Framework

Offer, Acceptance and Consideration: frequently asked questions

What is the difference between an offer and an invitation to offer?

An offer shows willingness to be bound once the other party accepts. An invitation to offer only invites others to make offers. Price tags, catalogues, auction calls and prospectuses are common invitations.

Can consideration be past?

Yes. Under the Indian Contract Act, consideration can be past, present or future, provided it was given at the desire of the promisor. This differs from English law, where past consideration is generally not valid.

What are the exceptions to privity of contract?

A stranger can sue in cases such as a beneficiary under a trust, a provision for marriage expenses or maintenance under a family arrangement, an assignment of the contract, and acknowledgment or estoppel. Covenants running with the land can also bind those who take the land, but this does not cover every contract relating to land. Agency is also treated as a situation where the principal can enforce the contract.

Is silence acceptance?

No. An offeror cannot make the offeree's silence an acceptance. Acceptance needs some act or communication showing assent, except where the circumstances or conduct clearly imply it.