To form an agreement, there must be at least two elements–one offer and the other acceptance. Offer or proposal is the starting point in the formation of an agreement. The word proposal is synonymous with the English word ‘offer’. Thus, an offer is the foundation of any agreement.
OFFER/PROPOSAL UNDER INDIAN CONTRACT ACT
As per Sec 2(a) of Indian Contract Act–
“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.”
Observing the above definition, a proposal involves the following essential elements–
- It must be made by one person to another person. In other words, there cannot be a proposal by a person to himself.
- It must be an expression of readiness or willingness to do (i.e. a positive act) or to abstain from doing something (i.e. a negative act)
- It must be made with a view to obtain the consent of that other person to proposed act or abstinence.
The person who makes an offer is called “Offeror” or “Promisor” and the person to whom the offer is made is called the “Offeree” or “Promisee”
HOW AN OFFER IS MADE: An offer may be either express or implied. An express offer is one which is made by words either spoken or written such as letter, telegram, telex, fax messages, e-mail or through internet. An implied offer is one that may be gathered from the conduct of the party or the circumstances of the case.
LEGAL RULES AS TO VALID OFFER
- Offer must be communicated to the offeree: The offer is completed only when it has been communicated to the offeree. Until the offer is communicated, it cannot be accepted. Thus, an offer accepted without its knowledge, does not confer any legal rights on the acceptor. Offer must be made with a view to obtaining the assent of the other party. An offer must be distinguished from mere expression of intention. [Harris v. Nickerson (1873)]
In Lalman Shukla v. Gauri Dutt (1913), A’s nephew has absconded from his home. He sent his servants to trace his missing nephew. When the servant had left, A afterwards announced that anybody who discovered the missing boy would be given the reward of Rs.500. The servant discovered the missing boy without knowing about 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 the discovered the missing boy.
- Special terms of the offer must also be communicated: If the special terms of the offer are not communicated, the offeree will not be bound by those terms. This question of special terms generally arises in case of standard form of contracts.
- The offer must be certain, definite and unambiguous: No contract can come into existence if the terms of the offer are vague or loose and indefinite. Both the parties should be clear about the contract, its terms and the legal consequences that may follow in a particular contract.
Sec.29 of Contract Act provides “a contract the terms of which is not certain and is not capable of being made certain is void for uncertainty”
Example: A offered to sell to B. ‘a hundred tons of oil’. The offer is uncertain as there is nothing to show what kind of oil is intended to be sold.
- The offer must be capable of creating legal relation: The offeror must intend the creation of legal relations. He must intend that if his offer is accepted a legally binding agreement shall result. A social, moral or domestic agreement without any intention to create legal relation is not a contract because the presumption is that parties do not intend legal consequences to follow from breach of contract. For example, A invited B to a dinner and B accepted the invitation. It is a mere social invitation. And A will not be liable if he fails to provide dinner to B.
- Offer may be express and implied: The offer may be express or implied. An offer which is expressed by words, written or spoken/oral, is called an express offer. The offer which is expressed otherwise than in words i.e. by conduct, is called an implied offer [Section 9].
- An offer may be conditional: An offer can be made subject to a condition. In that case, the offer can be accepted only subject to that condition. A conditional offer lapses when the condition is not accepted.
- Communication of offer must be complete and acceptance of such original offer only can make a contract i.e. a counter offer if made in place of acceptance will result in the lapse of the original offer:
Example: A offered to sell his pen to B for Rs.100. B replied, “I am ready to pay Rs.90. On A’s refusal to sell at this price, B agreed to pay Rs.100. Held, there was not contract as the acceptance to buy it for Rs.90 was a counter offer, i.e. rejection of the offer of A. Subsequent acceptance to pay Rs.100 is a fresh offer from B to which A was not bound go give his acceptance. This is called a counter offer and a counter offer amounts to rejection or lapse of the original offer after which original offer cannot be accepted.
- Cross offer do not conclude a contract: Where two parties make identical offers to each other, in ignorance of each others offer, the offers are known as cross-offers and neither of the two can be called an acceptance of the other and, therefore, there is no contract.
- An offer must not thrust or put the burden of acceptance on the offeree: Offer should not contain a term the non-compliance of which would amount to acceptance. One cannot say while making the offer that if the offer is not accepted before a certain date, it will be presumed to have been accepted. Moreover, acceptance cannot be presumed from silence. Acceptance is valid only if it is communicated to the offeror.
Example: A writes to B, “I offer to sell my house for Rs. 40000. If I do not receive a reply by next Monday, I shall assume that you have accepted the offer.” There will be no contract if B does not reply.
- An invitation to offer is not an offer: An offer must be distinguished from an invitation to offer. In the case of an “invitation to offer” the aim is merely to circulate information of readiness to negotiate business with anybody who on such information comes to the person sending it. Such invitations are not offer in the eyes of law and do not become promises on acceptance.
Example: Menu card of restaurants, price-tags attached with the goods displayed in any showroom or supermarket is an invitation to proposal/offer and not an offer in itself. If the salesman 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.
Similarly, job or tender advertisement inviting applications for a job or inviting tenders is an invitation to an offer. An advertisement for auction sale is merely an invitation to make an offer and not an offer for sale. Therefore, an advertisement of 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 auction is withdrawn.
KINDS OF OFFER/PROPOSAL
- Express offer– When the offeror is expressly communicated by the offeror by words, spoken or written, the offer is said to be an express offer.
- Implied offer– When the offer is not communicated expressly rather an offer may be implied from the conduct of the parties or the circumstances of the case, it is said to be an implied offer.
- Specific offer– It means an offer made to a particular person or to a group of persons. A specific offer can be accepted only by that person to whom it is made and communication of acceptance is necessary in case of specific offer.
- General offer– It means on offer which is made to the public in general. General offer can be accepted by anyone. If offeree fulfills the term and condition which is given in offer then offer is said to be accepted. Communication of acceptance is not necessary is case of general offer. Mere compliance with the terms of the offer gives rise to a contract. In Carlill v Carbolic Smoke Ball Company Limited (1893), the Company advertised that a reward of $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 she is entitled to recover the reward from the company.
- Cross offer– When two parties exchange identical offers in ignorance at the time of each other’s offer, the offer’s are called cross offer. A contract comes into existence when any of the parties, accept the cross offer made by the other party.
- Counter offer– When the offeree gives a qualified or conditional acceptance of the offer i.e. an acceptance subject to modifications and variations in the terms of original offer, he is said to make a counter offer. In other words, an offer made by the offeree in return of the original offer is called as a counter offer. A counter offer amounts to rejection of the original offer.
- Standing, open and continuous offer– An offer which is allowed to remain open for acceptance over a period of time is known as standing, open or continuous offer. Tender for supply of goods is a kind of standing offer. For example, when we ask the newspaper vendor to supply the newspaper daily, in such case, we do not repeat our offer daily and the newspaper vendor supplies the newspaper to us daily. The offers of such types are called standing offers.
- Standard form of contract– In commercial transactions, usually parties do not intent to negotiate the terms of contract at every occasion. And therefore, the institutions such as banks, insurance policy departments etc. design a standard document to be signed with every person who intends to avail services from such institutions. Such documents are called Standard form of contracts.
MODES OF REVOCATION OF OFFER (SECTION 6)
An offer may come to an end in any of the following ways stated in Section 6 of the Indian Contract Act:
- 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 before bound by it. Thus, the communication of revocation of offer should reach the offeree before the acceptance is communicated.
- By lapse of time: An offer lapse-
- If either offeror or offeree dies before acceptance.
- If it is not accepted within-
- The specific time, or
- A reasonable time, if not time is specified
Where time is fixed for the acceptance of the offer, and it is not acceptance within the fixed time, the offer comes to an end automatically on the expiry of fixed time. Where no time for acceptance is prescribed, the offer has to be accepted within 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.
- 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.
- 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 offeree before acceptance, the offer also comes to an end by operation of law.
- By counter offer by the offeree: Where a counter offer is made by the offeree, the original offer automatically comes to an end, as the counter offer amounts to rejection of the original offer.
- 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.
- By rejection of offer by the offeree: 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 offer may be express or implied.
- By change in law: Sometimes, there is a change in law which makes the offer illegal or incapable of performance. In such cases also, the offer ends.
ACCEPTANCE UNDER INDIAN CONTRACT ACT
Acceptance is defined under Sec. 2(b) of Indian Contract act:
“When the person to whom the proposal is made, signifies his assent there to, the proposal is said to be accepted.”
Alike a proposal, an acceptance may also be express or implied. When acceptance is made by words, spoken or written, it is an express acceptance. If it is accepted by conduct, it is an implied acceptance. Thus where a person boards a train or bus, he impliedly accepts to pay the usual fare.
Who may accept?
An offer can be accepted only by the person to whom the offer is made. It cannot be accepted by another person without the consent of the person making it. Specific answer to this question may be given regarding type of offer-
- In case of specific offer– Can be accepted only by the person to whom that offer was made.
- In case of General offer– An offer made to the world at large or public in general (called general offer) can be accepted by any person having knowledge of the offer by fulfilling the terms of the offer.
How to make acceptance?
Like an offer, an acceptance may also be either ‘express acceptance’ i.e. by words, oral or written or ‘implied acceptance’ i.e. otherwise than by words which means by conduct.
REQUIREMENTS OF A VALID ACCEPTANCE
- Acceptance must be absolute and unconditional: As per Sec. 7(1), an acceptance must be unconditional and unqualified. Accepting an offer with conditions, variations and reservations amounts to a counter offer and rejection of the original offer. The acceptor must comply with the terms of the offer. A variations or alteration, however, small of the offer, will make the acceptance invalid.
- Acceptance must be communicated to the offeror: If the offeror remains silent and does nothing to show that he has accepted the offer, no contract is formed. The acceptor should do something to signify his intention to accept. Thus, where a person accepts an offer but fails to post the letter of acceptance, it is no acceptance.
- Acceptance must be within a reasonable time: Acceptance to be valid must be made within the time allowed by the offeror and if no time is specified, it must be made within a reasonable time.
- It must be according to the mode prescribed or usual or reasonable mode: As per Sec. 7(2), if the proposal does not prescribe the manner in which it is to be accepted, then the offer must be accepted in some usual and reasonable manner. And if the proposal prescribes the manner in which it is to be accepted then the offer must be accepted in the prescribed manner only, within a reasonable time. Acceptance should be exactly made as is demanded by the offeror. This is also called “mirror image rule.”
- Offer should not contain a term the non-compliance of which would amount to acceptance. One cannot say while making the offer if offeree remains silent then acceptance shall be presumed from such silence. Silence is not permitted as a mode of acceptance in law. Acceptance is valid only if it is communicated to the offeror.
GENERAL RULES AS TO COMMUNICATION OF REVOCATION, OFFER AND ACCEPTANCE
When parties are at a distance and the offer and acceptance are exchanged through post, rules are contained in Sections 3 and 4.
- Communication of proposal is complete– When it comes to the knowledge of the person to whom it is made i.e. the offeree. In case an offer is made by post, its communication will be complete when the letter containing the offer reaches the offeree.
- Communication of acceptance is complete–The communication of acceptance is complete at different times for the proposer and acceptor. The rules regarding the communication of acceptance are as follows-
- As against the proposer: As soon as a duly addressed letter of acceptance is put into the course of transmission i.e. when the letter of acceptance is posted so as to be out of reach of the acceptor, whether the same reaches the proposer or not. Thus, mere posting of letter of acceptance is sufficient to conclude a contract. However, the letter must be properly addressed and stamped. Where the letter of acceptance is posted by the acceptor but it never reaches the offeror, or it is delayed in transit, it will not affect the validity of acceptance. The offeror is bound by the acceptance.
- As against the acceptor: As soon as the proposer receives the letter of acceptance.
- ACCEPTANCE BY TELEPHONES TELEX OR FAX: Such contracts are treated on the same principle as an oral agreement made between two parties when they are face to face with
each other. In such cases, the communication of acceptance is complete when the acceptance is received or is heard by the offeror and not when it is transmitted by the offeree. The contract is concluded as soon as the offeror receives or hears the acceptance. Therefore, the acceptor must ensure that his acceptance is properly received by the proposer.
- THE PLACE OF CONTRACT: In case of acceptance by the post, the place where the letter of acceptance is posted is the place of contract. Where the acceptance is given by instantaneous means of communication (telephone, fax, telex etc.), the contract is made at the place where the acceptance is received or is heard.
COMMUNICATION OF REVOCATION OF OFFER AND ACCEPTANCE
The term ‘revocation’ means ‘taking back’ or ‘withdrawal’. Rules regarding revocation have been incorporated under Sec. 5 of the Contract Act. The communication of a revocation is complete as against the person who makes it when it is put into the course of transmission. As against the person to whom it is made, when it comes to his knowledge.
Time limit for revocation of offer: A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterward. We know that communication of acceptance is complete when a properly addressed and stamped letter of acceptance is duly posted by the acceptor. Hence, an offer can be revoked at any time before the letter of acceptance is duly posted by the acceptor. Thus, the proposer may revoke his offer by a speedier mode of communication which will reach before the letter of acceptance is posted by the acceptor.
RULES REGARDING REVOCATION:
- Revocation must always be express.
- Revocation must move from the offerer/proposer himself or through a duly authorised agent
- Notice of revocation of a general offer must be given through the same channel by which the original offer was made.
- Offer can be revoked even if the letter of acceptance is lost or delayed in transit.
Time limit for revocation of acceptance: According to Sec. 5, “An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards”
We know that communication of acceptance is complete as against the acceptor when the letter of acceptance is actually received by the proposer. Hence, an acceptance can be revoked at any time before the letter of acceptance is actually received by the proposer. Thus, the acceptor may revoke his acceptance by a speedier mode of communication which will reach before the letter of acceptance is received by the proposer.
RELEVANT CASES ON OFFER AND ACCEPTANCE
- Lalman v. Gauridatta (1913)
- Adams v. Lindsell (1818)
- Bhagvandas Goverdhandas Kedia v. Girdharilal Pursottamdas (1966)
- Powell v. Lee (1908)
- Felthouse v. Bindley 1863
- Harvey v. Facey (1893)
- Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd. (1952)
- MC Pherson v. Appanna (1951)
You can also Read: Essentials of Contract