Offer/proposal of a valid contract
“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”.
Introduction
The term offer is derived from the Latin word ‘offeree’ which means present or provide. The word proposal of the Contract Act, 1872, is synonyms of the term ‘offer’ of the English Contract Act. The word proposal is used in the Indian Contract Act in the same sense as the word offer is used in the English Law. An offer involves the making of the proposal.
The Offer or proposal is the starting point in the formation of a contract. The parties through negotiation & bargaining may strike a deal resulting into acceptance of offer, thereby creating a contract. However in the modern times, due to enormous increase in the commercial transactions, ‘standard form' of contracts are used.
For example, the insurance company prints the terms of insurance contract in advance on a standard form and the insured person has to simply sign on the dotted lines indicating his acceptance. These terms are not open for discussion or bargaining and the other party was to either ‘take it or leave it’. Such standard forms of contract containing the various conditions and terms are also called as ‘adhesive contracts’.
The Indian Contract Act uses the term proposal, instead of offer. However the words proposal and offer are synonymous and are used interchangeably.
The Indian Contract Act uses the term proposal, instead of offer. However the words proposal and offer are synonymous and are used interchangeably.
Section 2(a) of the Indian Contract Act defines a proposal as, “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 definition of proposal has two elements -
1. It must be an expression/declaration of the willingness to do or to abstain from doing something.
The definition of proposal has two elements -
1. It must be an expression/declaration of the willingness to do or to abstain from doing something.
For Example: A says to B, will you buy my car for Rs. 2 lac? This is a declaration to sell the car.
2. This declaration is made with a view to obtain the assent of the other person to such act or abstinence.
2. This declaration is made with a view to obtain the assent of the other person to such act or abstinence.
Thus a casual statement that “I may sell my Maruti Car if I can get Rs. 2 lac for it” is not a proposal because this expression is not made with a view to obtain assent of the other person.
The person who makes the offer is called the ‘offeror’ or promisor’ and the person to whom the offer is made is called the ‘offeree' or ‘promisee', Section 2(c).
There must be two (or) more parties to create a valid offer because one person cannot make a proposal/offer to him self.
For example: If A wants to sell his car. He must need a buyer. He cannot enter into a contract with himself and sell his car to himself. There must be some other person to whom he may sell the car.
Section 9 states, “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.
For Example: When bus runs on specific routes, there is an implied offer to carry passengers for a certain fare.
When an offer is made to a specific person or a group of specific persons, is called a specific offer. When the offer is addressed to public at large, it is called a general offer.
The person who makes the offer is called the ‘offeror’ or promisor’ and the person to whom the offer is made is called the ‘offeree' or ‘promisee', Section 2(c).
Essentials of offer-
1. There must be at least two parties i.e., offeror and offeree.
There must be two (or) more parties to create a valid offer because one person cannot make a proposal/offer to him self.
For example: If A wants to sell his car. He must need a buyer. He cannot enter into a contract with himself and sell his car to himself. There must be some other person to whom he may sell the car.
2. An offer may be express or implied
Section 9 states, “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.
For Example: When bus runs on specific routes, there is an implied offer to carry passengers for a certain fare.
3. An offer may be specific or general
When an offer is made to a specific person or a group of specific persons, is called a specific offer. When the offer is addressed to public at large, it is called a general offer.
A specific offer can be accepted by the specific person only, while a general offer can be accepted by any member of the general public.
For Example: A advertises that whosoever finds and brings his lost briefcase to him shall be paid Rs. 5000/-; it is a general offer and when B finds out the briefcase and brings it to A, it amounts to acceptance of the offer by B.
Case law- Carlill vs Carbolic Smoke Ball Co.- The Carbolic Smoke Ball Co., issued an advertisement in which the Company offered to pay Pound 100 to any person who contracts influenza, after having used their smoke balls three times daily for two weeks, according to the printed direction. Mrs. Carlill, on the faith of the advertisement, bought and used the balls according to the directions, but nevertheless suffered from influenza. She sued the company or the promised reward. The company was held liable.
If the offer is made to create only a social or moral obligation, the obligation shall not be legally binding. Mere invitation to dinner is no offer.
For Example:A invites B to dinner party and B accepts the invitation. B does not turn up to the dinner party. A cannot sue B for breach of contract as there was no intention to create legal obligation.
Invitation to offer or invitation to treat means that the offeror is merely giving information to another person so that the negotiations can start and the other person can be moved to make an offer. Preliminary negotiations or expressions of interest will be regarded as invitations to treat, rather than as offers.
For example:
1. Catalogue of goods is not offer, but only an invitation for offer; so also statement of lowest price in answer to enquiry.
2. Display of goods with price tags in a self-service shop is merely an invitation to offer, and when a customer picks up those goods and intends to buy them, that amounts to an offer, the shopkeeper is free not to accept that offer.
3. A tender notice does not amount to an offer; it is merely an invitation to contractors for making offers. An advertisement calling for tenders, therefore, is not a proposal within the meaning of the Contract Act, it only invites a proposal. It is the submission of tender which is in the nature of a proposal or an offer.
4. A menu card in a hotel is an invitation to offer. When the order for eatables is placed, it amounts to offer.
5. An advertisement inviting intending buyers of goods to come and make bids at the auction is merely invitation to offer. Each bid is an offer, and when a bid is accepted that amounts to acceptance of the offer and results in an agreement.
There can be no acceptance of an offer. Until the communication of the offer has been made to the offeree.
#Lalman Shukla v. GauriDutt
A’s nephew was missing from home. He sent his servant B in search of his nephew. After his servant had left, he announced a reward for anybody who would trace his nephew, B traced the nephew without knowing the announcement of the reward. When he came to know of the reward he claimed it. It was held that he could not recover the reward as the offer containing the reward was not communicated to him.
The terms of the offer must be certain or capable of being made certain. They should not be vague or ambiguous.
For Example- A offered to sell to B hundred tons of oil. The offer is uncertain as there is nothing to show what kind of oil is intended to be sold.
According to Section 29, agreements the meaning of which is uncertain are void.
For Example: A advertises that whosoever finds and brings his lost briefcase to him shall be paid Rs. 5000/-; it is a general offer and when B finds out the briefcase and brings it to A, it amounts to acceptance of the offer by B.
Case law- Carlill vs Carbolic Smoke Ball Co.- The Carbolic Smoke Ball Co., issued an advertisement in which the Company offered to pay Pound 100 to any person who contracts influenza, after having used their smoke balls three times daily for two weeks, according to the printed direction. Mrs. Carlill, on the faith of the advertisement, bought and used the balls according to the directions, but nevertheless suffered from influenza. She sued the company or the promised reward. The company was held liable.
4. An offer must be made with a view to create legal relationship -
If the offer is made to create only a social or moral obligation, the obligation shall not be legally binding. Mere invitation to dinner is no offer.
For Example:A invites B to dinner party and B accepts the invitation. B does not turn up to the dinner party. A cannot sue B for breach of contract as there was no intention to create legal obligation.
5. Offer must be distinguished from an invitation to offer -
Invitation to offer or invitation to treat means that the offeror is merely giving information to another person so that the negotiations can start and the other person can be moved to make an offer. Preliminary negotiations or expressions of interest will be regarded as invitations to treat, rather than as offers.
For example:
1. Catalogue of goods is not offer, but only an invitation for offer; so also statement of lowest price in answer to enquiry.
2. Display of goods with price tags in a self-service shop is merely an invitation to offer, and when a customer picks up those goods and intends to buy them, that amounts to an offer, the shopkeeper is free not to accept that offer.
3. A tender notice does not amount to an offer; it is merely an invitation to contractors for making offers. An advertisement calling for tenders, therefore, is not a proposal within the meaning of the Contract Act, it only invites a proposal. It is the submission of tender which is in the nature of a proposal or an offer.
4. A menu card in a hotel is an invitation to offer. When the order for eatables is placed, it amounts to offer.
5. An advertisement inviting intending buyers of goods to come and make bids at the auction is merely invitation to offer. Each bid is an offer, and when a bid is accepted that amounts to acceptance of the offer and results in an agreement.
6. An offer must be communicated to the offeree-
There can be no acceptance of an offer. Until the communication of the offer has been made to the offeree.
#Lalman Shukla v. GauriDutt
A’s nephew was missing from home. He sent his servant B in search of his nephew. After his servant had left, he announced a reward for anybody who would trace his nephew, B traced the nephew without knowing the announcement of the reward. When he came to know of the reward he claimed it. It was held that he could not recover the reward as the offer containing the reward was not communicated to him.
7. The terms of offer must be certain-
The terms of the offer must be certain or capable of being made certain. They should not be vague or ambiguous.
For Example- A offered to sell to B hundred tons of oil. The offer is uncertain as there is nothing to show what kind of oil is intended to be sold.
According to Section 29, agreements the meaning of which is uncertain are void.
8. An offer must not be “negative” in terms-
An offer should not contain a term, the non-compliance of which would amount to acceptance.
For example: A writes to B “I shall buy your house for Rs. 10 Lac. If you do not reply I shall assume that you have accepted my offer”. This is not a valid offer.9. Mere quotation of price is no offer or mere answer to a question is no offer.
The case of Harvey v. Facey illustrates nicely the concept of offer. Harvey sent a telegram to Facey “Will you sell us your Bumper Hall Pen? Telegraph lowest cash price". Facey replied also by telegram, “Lowest price to Bumper Hall Pen is Pound 900”. Harvey immediately sent second telegram “We agree to buy Bumper Hall Pen for the sum of Pound 900 asked by you". There was no reply from Facey. It was held, there was no concluded contract between Harvey and Facey. In the first telegram, Harvey asked two questions, first as to willingness to sell and second as to the lowest price. Facey answered only the second question and gave the lowest price. He reserved his answer to the willingness to sell. Thus, he made no offer. The second telegram sent by Harvey was an offer to buy, but that was never accepted by Facey.
10. Two identical cross offers do not make a contract
When two persons make an offer to each other on similar terms, without having the knowledge of the offer being made by the other side, it is known as cross offer. Such cross offer does not amount to acceptance of one’s offer by the other and therefore does not constitute a contract.
For example: A, by a letter, offers to sell his car to B for Rs. 5 Lac. B, by a letter, which crosses A’s letter in the post, offers to buy it for Rs. 5 Lac. The offers are cross offers and no binding contract will arise. A contract can arise only when acceptance is given after the knowledge of the offer.
11. A counter offer amounts to rejection of the original offer.
#Hyde vs Wrench
‘A’ offered to sell a farm to ‘B’ for £1000. ‘B’ offered £950. ‘A’ refused the offer. Subsequently, ‘B’ offered to purchase the farm for £1000. Held, there was not contract by 'B' as the acceptance to buy it for £950 was a counter offer, i.e. rejection of the offer of A. Subsequent acceptance to pay £1,000 is a fresh offer from B to A which A was not bound to give his acceptance.
‘A’ offered to sell a farm to ‘B’ for £1000. ‘B’ offered £950. ‘A’ refused the offer. Subsequently, ‘B’ offered to purchase the farm for £1000. Held, there was not contract by 'B' as the acceptance to buy it for £950 was a counter offer, i.e. rejection of the offer of A. Subsequent acceptance to pay £1,000 is a fresh offer from B to A which A was not bound to give his acceptance.
Kinds of Offer
1. Express or Implied Offer
When the offer is made in words, it is said to be express. An implied offer is one which is inferred from the act or conduct of the party or from the circumstances of the case. Section 9 states, “In so far as the proposal or acceptance of any promise is made otherwise than in words, the promise is said to be implied”.
2. Specific or general Offer
When an offer is made to specific person or a group of specific persons is called a specific offer. When the offer is addressed to public at large, it is called a general offer. A specific offer can be accepted by the specific person only, while a general offer can be accepted by any member of the general public.
3. Standing Offer
A standing offer is a continuous offer. It is generally in the nature of a tender in which there is an offer to supply goods as and when required during a certain period. It creates a contract only when an order of specified quantity is given to the tenderer. Thus, each order placed created a separate contract. The offeror of a standing offer can withdraw his offer to supply goods at any time actual order is given to him.
4. Cross Offer
When two persons make an offer to each other on similar terms without having the knowledge of the offer being made by the other side, it is known as cross offer. Such cross offer does not amount to acceptance of one’s offer by the other and therefore does not constitute a contract.
5. Counter Offer
It is necessary that the acceptance must match the offer. It must be a mirror image of the offer. If any alternation is made, or anything added, then this will be a counter offer, and will terminate the offer. A counter offer is an implied rejection of original offer.
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