The whole process of entering into a contract starts with a proposal or an offer made by one party to another. To enter into an agreement such a proposal must be accepted. Let us take a look at the definition and classification of an offer and the essentials of a valid offer.
In Indian Contract Act, 1972 it is described as: -
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.
This definition reveals the following three essentials of a ‘proposal’.
- One person signifies to another; it must be an expression of the willingness to do or to abstain from doing something. According to section 3 to signify means that the proposal must be communicated to the other party. While making a contract, it is essential that the offer should be communicated to the other party. A proposal is complete when it is communicated. (Section 3)
- The expression of willingness to do or to abstain from doing something must be to another person. There can be no ‘proposal’ by a person to himself.
- The expression of willingness to do or to abstain from doing some-thing must be made with a view to obtaining the assent of the other person to such act or abstinence.
o Thus a casual enquiry is not a ‘proposal’. e.g. “do you intend to sell your motorcycle?” is not a valid proposal.
o Similarly, a mere statement of intention is not a ‘proposal’. e.g. “I may sell my motorcycle if I can get Rs. 14,000 for it” is not a valid proposal.
o But if M says to N, “will you buy my motorcycle from Rs. 14, 000,” or “I am willing to sell my motorcycle to you for Rs. 14,000”, we have a ‘proposal’ as it has been made with the object of obtaining the assent of N.
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Let us discuss about an offer in case of contract law.
Legal Rules Regarding a Valid Offer
A valid offer must be in conformity with the following rules:
1. Express and Implied Offers
An offer may be’ express’ or ‘implied’ i.e. An offer may be made either by words or by conduct.
An offer which is expressed by words, spoken or written is called an ‘express offer’ and the one which is inferred form the conduct of a person or the circumstances of the case is called an ‘implied offer.’
According to Section 9 in so far as the proposal or acceptance of any promise is made words, the promise is said to be express.
e.g. Thus stepping into a taxi and consuming eatables at a restaurant both create implied promise to pay for benefits employed.
Case Law : In Upton Rural District Council v Powell, a fire broke out in the defendant’s farm, believing that he was entitled to the free service of Upton Fire Brigade (which he was not) he summoned it. Upton claimed compensation for its services. Held services were rendered on an implied promise to pay for them.
Illustrations: -
1) M says to N that he is willing to sell his motorcycle to him for Rs. 20,000. This is an express offer.
2) X writes to Y he offers to sell his house to him for Rs. 80,000. There is an express offer.
3) The Delhi Transport Corporation runs omnibuses on different routes to carry passengers at the scheduled fare. This is an implied offer by the D.T.C.
4) A shoe shiner starts shining some one’s shoes, without being asked to do so, in such circumstances that any reasonable man could guess that he expects to be paid for this, he makes an implied offer.
2. Legal consequences and legal relations: -
An offer must contemplate to give rise to legal consequences and be capable of creating legal relations. If the offer does not intend to give rise to legal consequences, it is not a valid offer in the eyes of law.
Even though it is accepted and there is consideration, because in social agreements or domestic arrangements the presumption is that the parties do not intend legal consequences to follow the breach of agreement.
e.g. An offer to a friend to dine at the offeror’s place, or an offer to one’s wife to show her a movie is not a valid offer and as such cannot give rise to a binding agreement.
In the case of agreements regulating business agreements it is taken for granted that parties intend legal consequences to follow.
Case Law: -
1) Even in the case of a business agreement if the parties agree that the breach of the agreement would not confer on either of the parties a right to enforce the agreement in a court of law, there is no contract (Rose & Frank Co. vs. Crompton & Brothers Ltd.)
2) Under English law, the position was well settled in the case of Balfour v Balfour[(1919) 2 KB 571 (CA)], where it was held that “to create a contract there must be a common intention of the parties to enter into legal obligations”.
3. Certain terms of an offer: -
The terms of the offer must be certain and not loose or vague. The terms of the offer must be certain and not vague (Sec. 29).
Mangham L.J. has rightly observed: “unless all the material terms of the contract are agreed, there is no binding obligation.”
Thus an agreement to agree in future is not a contract, because the terms of agreement are uncertain as they are yet to be settled.
4. An invitation to offer is not an offer: -
In the case of an ‘invitation to offer’ the person sending out the invitation does not make an offer but only invites the other party to make an offer. His object is merely to circulate information that he is willing to deal with anybody who, on such information, is willing to open negotiations with him. Such invitations for offers are therefore not offers.
An offer must be distinguished from an ‘invitation to receive offer’ or as it is sometimes expressed in judicial language an ‘invitation to treat.’
Invitation to an offer is to negotiate or may be considered an offer to receive offers. Whereas an offer is the final expression of willingness by the offeror to be bound by his offer. If a party, without expressing his final willingness, proposes certain terms on which he is willing to negotiate, he is only making an invitation to the other party to make an offer on those terms.
e.g. Thus an advertisement on a television is not an offer but a mere invitation to everyone who is watching it to form an offer.
Case Law: - The distinction was clearly laid down in the infamous case, Harvey v Facey. [1893 AC 552]
5. Specific and General offer: -
An offer may be a ‘specific’ or ‘general’. There are two kinds of offers - general and specific.
Specific Offer: - The specific order is made to a specific person. Such an offer can be accepted only by the person or persons to whom it is made.
A specific offer, on the other hand, is only made to specific parties, and so only they can accept the said offer or proposal. They are also sometimes known as special offers.
e.g. Thus, where M makes an offer to N to sell his bicycle for Rs. 200, there is a specific offer and N alone can accept it.
e.g. A offers to sell his horse to B for Rs 5000/-. Then only B can accept such an offer because it is specific to him.
General offer: - A general offer is made to the world or public at large. However, in case of general offers the contract is made only with that person who comes forward and performs the conditions of the proposal as such performance amounts to the acceptance of performance. A ‘general offer’ on the enter hand is one which is made to the world at large or public in general and may be accepted by any person who fulfils the requisite conditions.
Case Law: - The leading case on the subject of ‘general offer’ is that of Carlill vs Carbolic smoke Ball co,”
e.g. A newspaper put out a reward for solving a puzzle. So if any member of the public can accept the offer and be entitled to the reward if he finishes the act (solves the puzzle.)
In such cases, ‘performance of the act’ or acceptance of any consideration for a reciprocal promise which may be offered with the proposal raises an inference of acceptance which is clearly laid down in Section 8 of the Act.
If a general offer is of a continuing nature it shall be open for acceptance by any number of persons until it is retracted or till its closing date. But if the offer is about information for a missing thing, it is closed as soon as the first information comes in.
6. Offer must be communicated: -
An offer must be communicated to the offeree. Section 4 provides that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made (Section. 4).
An offer is effective only when it is communicated to the offeree.
Until the offer is made known to the offeree, there can be no acceptance and no contract.
Doing anything in ignorance of the offer can never be treated as its acceptance, for there was never a consensus of wills.
This applies to both ‘specific’ and ‘general’ offers.
However, an act in ignorance of an offer does not amount to acceptance of that offer.
Case Law: - Williams v Carwardine, (1833) 2 LJKB 101: When such an offer is accepted with knowledge of the reward, the fact that an informer was influenced by some other motives other than the reward will be immaterial.
The famous case study regarding this is Lalman Shukla v. Gauri Dutt. It makes clear that acceptance in ignorance of the proposal does not amount to acceptance.
7. Cross offers.
When two parties make identical offers to each other, in ignorance of each other’s offer, the offers are cross offers. Such offers do not constitute acceptance of one’s offer by the other and as such there is no completed agreement.
e.g. A wrote to B offering to sell him certain goods. On the same day, B wrote to A offering to buy the same goods. The letters crossed in the post. There is no concluded contract between A and B.
8. Non-compliance Terms do not lead to valid offer: -
An offer should not contain a term the non- compliance of which would amount to acceptance. If the offeree does not reply, there is no contract, because no obligation to reply can be imposed on him, on the grounds of justice.
e.g. Thus an offeror cannot say that if acceptance is not communicated up to a certain date, the offer would be presumed to have been accepted.
Example: A offers to sell his cow to B for 5000/-. If the offer is not rejected by Monday it will be considered as accepted. This is not a valid offer.
9. Terms and Condition: -
An offer can be made subject to any terms and conditions. An offeror may attach any terms and conditions to the offer he makes. He may even prescribe the mode of acceptance. The offeree will have to accept all the terms of the offer.
There is no contract, unless all the terms of the offer are complied with and accepted in the mode prescribed.
As regards mode of acceptance, it must be noted that in case of deviated acceptance, for example, if the offeror asks for sending the acceptance ‘by telegram’ and the offeree sends the acceptance ‘by post’ the offer or may decline to treat that acceptance as valid acceptance provided the gives a notice to that effect to the offeree within a reasonable time after the acceptance is communicated to him. If he does not inform the offeree as to this effect, he is deemed to have accepted the deviated acceptance. (Section 7).
e.g. So A can offer to sell goods to B if he makes half the payment in advance. Now B can accept these conditions or make a counteroffer.
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This blog is intended for study only. If you are preparing for any exams using these notes then 1) part in red is as it is from the Indian Contract Act, 1872. 2) Underlined part is minimum required part to be learned. 3) Case laws will give you extra marks as well as examples and illustrations will help you to explain the provisions clearly.
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