Contract Law In-Depth: Offer

An offer is one of the essentials of a valid contract. In order to create a valid contract, one party must make an offer, another party must accept the offer, and consideration must be exchanged. An offer is different from invitation to offer. An offer can be revoked or terminated under certain conditions. There are also times when an offer can be negotiated to create a counteroffer.

This article focuses primarily on proposal as prescribed in the Indian Contract Act,1872 and it also lays emphasis on a few important principles under offer with the help of well explained examples from English law.

Introduction

Contractual agreement has traditionally been analysed in terms of offer and acceptance. A Contract is an agreement between two or more persons to achieve a particular purpose while specifying the rights and duties between each party. The law governing contracts between persons in India comprises of both Indian law and English law.

An offer is the starting point of any agreement. An agreement becomes complete as soon as the offer is accepted and communicated to the person making the offer. Offer is a demonstration of your willingness to enter into an agreement and an invitation to the other party to conclude the agreement by expressing assent. The one who makes the offer is known as the “offerer,” while the person who receives the offer is called the “offeree.”

What Is A Contract?

Concept of valid contract is explained under section 2 of Indian Contract Act,1872-

  • Section 2(h)[1] defines contract as an agreement enforceable by law.
    • Agreement is defined in section 2(e)[2] as every promise and every set of promises, forming the consideration for each other.
    • A promise is when a proposal is accepted it becomes a promise as defined in section 2(b)[3].
    • The person who makes the proposal is called the promisor and the person accepting is called the promisee as defined in section 2(c)[4].

Thus, the definition of contract can be compiled as follows-

When a proposal made by the promisor is accepted by the promisee and a promise is established between them forming a consideration for each other this becomes an agreement and when this agreement is enforceable by law it becomes a contract. The word ‘proposal’ used above is synonymous in English Law with ‘offer’.

The law governing contracts entered into between persons in India comprises of both Indian law (the Indian Contract Act, 1872) and English Law or Common Law (the general principles of law that are established and accepted in the United Kingdom).

A contract has five main essentials that need to be fulfilled without which it will not be recognized as a contract. These essentials are- 1) Offer 2) Acceptance 3) Consideration 4) intention to create legal relations 5) Legal enforceability

What Is an Offer/ Proposal?

In contract law, an offer is a promise in exchange for performance by another party. The term ‘offer’ and ‘proposal’ under contract law is often used interchangeably. According to Section 2(a) of the Indian Contract Act 1872, “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”.

Every contract starts from an offer. Without an offer there can be no acceptance and then no agreement and then no contract. An offer can be revoked or terminated under certain conditions. There are also times when an offer can be negotiated to create a counteroffer.

The Essentials of a Valid Offer

  1. An Intention to Create Legal Obligations

The intention to create legal relations is not a necessary ingredient of a contract as per section 10 of the Indian Contract Act, 1872 but this principle is considered to be a necessary ingredient of an offer according to English law. In Balfour V. Balfour[i] case, Mr. Balfour and his wife who lived in Sri Lanka, had gone on vacation to England where Mrs. Balfour fell seriously ill and was advised not to travel back to Sri Lanka. Mr. Balfour agreed to his wife remaining in England while he returned to Sri Lanka after promising his wife to pay her a monthly sum of 30 Euros. After some time, the relation between the couple got strained and Mr. Balfour stopped sending monthly money to his wife. Mrs. Balfour filed a case against her husband, but the judge ruled that the courts do not have any dominion over social agreements and that Mr. Balfour made that promise to his wife without any intention to create legal obligations.

  • An Offer Must Be Express or Implied

Section 3 of the Indian Contract Act,1872 states that an express offer is one which is made in words, written or spoken while Section 9 of the Act states that an offer which is made by an act or the conduct of the offeror is called an implied offer. In Uptron Rural District Council V. Powel[ii]l case, a fire had broken out on the defendant’s farm and he had called Uptron Fire Brigade since he believed that he was entitled to its free service. The fire was put out by the brigade and the brigade claimed payment for its services since the defendant’s farm did not lie in the free service zone of the brigade. The court ruled that the defendant wanted and asked for the services of Upton and in response the services were provided by them. Hence, it was held that the services were rendered on an implied promise to pay for them.

  • An Offer Differs from An Invitation to Offer

Invitation to offer means an expression of willingness to negotiate. An offer will lead to a binding contract on acceptance while an invitation to treat can not be accepted it is merely an invitation for offers. It is an action inviting the other party to make an offer. Whereas an offer includes the fundamental terms of the agreement with the intention that no further negotiations are to take place. Advertisement, exhibition of goods, auction of goods, tender etc. Are some of the types of invitation to offer? In Pharmaceutical Society of Great Britain V. Boots Cash Chemists (Southern) Ltd[iii] case, a customer selected a drug from the shelf of a self-service shop and bought it to the cash counter. The question arose whether the action of the customer constituted an offer or was it an acceptance to the offer. The courts ruled that it was an offer to buy and no sale would take place until the buyer’s offer is accepted at the price offered.

  • The Terms of The Offer Must Be Definite and Not Vague

All the terms of the contract must be agreed upon at the time of the contract. If the terms of the offer are vague and uncertain, no contract will come into existence. For example, a person offers to sell another person fruit worth Rs 5000/-. This is not a valid offer since what kinds of fruits or their specific quantities are not mentioned.

  • An Offer Cannot Prescribe Silence as A Mode of Acceptance

An offer is considered invalid if the offeror says that if the acceptance of the offer is not communicated by a certain date then the offer would be presumed to be accepted. In Felthouse v. Bindley[iv], a person made an offer to his nephew to buy his horse and wrote that if the acceptance of the offer is not communicated by a certain date then the offer would be presumed to be accepted. The nephew did not reply to the offer, but he told his auctioneer not to sell that horse, but the auctioneer sold that horse by mistake and the uncle sued the auctioneer. The court held that 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.

  • A General Offer Need Not Be Specifically Accepted

A general offer is an offer made to the world at large and can be accepted by anyone and this acceptance need not be communicated to the offeror. In Carlill V. Carbolic Smoke Ball Co.[v] case, the defendants were in the business of preparing some balls (a medical preparation against influenza) and they had issued an advertisement in a newspaper which read that if anyone contracted influenza after using their some ball then they would be offered a reward of 100 Euro. As a goodwill gesture the defendant deposited 1000 Euros in a bank. Mrs. Carlill, the plaintiff contracted influenza after using some ball in the manner prescribed on it and she sued the defendants for compensation. The court held that defendants were liable since it was a general offer and they had breached it as soon as Mrs. Carlill contracted influenza.

  • Offer Must Be Communicated

For an offer to be valid a key part is that it should be communicated. According to Section 4 of the Indian Contract Act,1872 the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. An offer cannot be accepted unless it has been brought to the knowledge of the person to whom it is made. In Lalman Shukla v. Gauri Dutt[vi] case, the nephew of the defendant absconded, and the defendant sent his servant Lalman Shukla (Plaintiff) to trace for the missing boy. After Lalman Shukla had left, Gauri Dutta announced a reward of Rs 501 to the person who finds the missing boy. Lalman Shukla traced the boy but he did not know about the reward. He claimed the reward money from Gauri Dutt. The courts held that the plaintiff was not entitled to the reward since he did not know of the offer.

Communication of An Offer

According to Section 4 of the Indian Contract Act, 1872 the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. The communication of an acceptance of a proposal as against the proposer is complete when it is put in a course of transmission to him so that it is out of the power of the acceptor whereas the communication of an acceptance of a proposal as against the acceptor is complete when it comes to the knowledge of the proposer.

In Felthouse v. Bindley[vii] it was observed that Communication is necessary to put forth the offer and acceptance. An acceptance must be communicated for it to be effective.

In Household Fire Insurance Co. v. Grant[viii] case, the court ruled that when an offer is properly accepted by means of a letter or any acceptable way of communication, the acceptance is complete and a binding contract comes into force as soon as the letter is posted, even though the letter is lost in the post and never reaches the offeror.

Revocation of An Offer

According to Section 5 of the Indian Contract Act, 1872 a proposal may be revoked at any time before the communication of acceptance is complete as against the proposer, but not afterwards. Revocation is a way of termination of the offer.

In Henthorn v. Fraser[ix] case, the defendant and the claimant were situated at Liverpool and Birkenhead, respectively. The defendant called at the office of the claimant in order to negotiate the purchase of some houses. The defendant handed the claimant a note giving him the option to purchase some houses within 14 days. On the next day, the defendant withdrew the offer by post, but his withdrawal did not reach the claimant until 5 P.M. Meanwhile, the claimant responded by post with an unconditional acceptance of the offer, which was delivered to the defendant after its office had closed. The letter was opened by the defendant the next morning. The court held that the contract was valid since the acceptance was out of the control of the appellant at 4pm and the letter of revocation had not received before that. The acceptance is complete as soon as it was posted.

A proposal can be revoked in the following situations-

  1. By communication of notice of revocation by the proposer to the proposee.
  2. If the time prescribed in the proposal has lapsed or if no time is prescribed in the offer, then the proposal will lapse after the passage of a reasonable period of time.
  3. When the proposer dies or becomes insane and if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.
  4. If the acceptor fails to fulfil a condition precedent to the acceptance of the proposal.

Types of Offer-

The Indian Contract Act, 1872 does not specifically mention the different types of offers but as India is a common law country, we develop law from the decisions held by Indian and British courts. Therefore, using the decisions held by the courts an offer can be classified as follows-

  1. General Offer

A general offer is an offer that is made to the public at large and places no restrictions on the type of people accepting the offer. A case of general offer would be Harbhajan Lal v. Harcharan Lal[x], in which the defendant’s son had absconded from his home and the defendant sent out a notice which read that anyone who found his son would be rewarded Rs. 500. The plaintiff found the missing son at a railway station and informed the defendant. The plaintiff had received the reward since the notice sent out by the defendant was a general offer and could be accepted by anyone.

  • Special Offer

A specific offer is an offer that is made to certain specific people and places restrictions on the type of people who can accept the offer. In the case of Boulton v. Jones[xi], the Boulton had taken over the business of one Brockle Hurst, with whom Jones had previous dealings. Jones sent an order for goods to Brockle Hurst, which Boulton supplied without informing Jones that the business had changed hands. When Jones found out that the goods had not come from Brockle Hurst, he refused to pay for the items purchased because he said that it was his intention to enter into a contract with Hurst and not Boulton. Hence it was held that since Jones made a specific offer to Hurst, he will not be liable to pay Boulton.

  • Counteroffer

A counteroffer is said to exist when the offeree does not accept the original offer, but the offeree is willing to accept the offer after making some changes in the form of additions or deletions from the original offer. In such a situation the original offer gets rejected and it cannot be revived at a later time. In such situations, the offeree becomes the new offeror and the offeror becomes the new offeree. A counteroffer can only be accepted/ rejected by the party who offered the initial offer and only if that party accepts the counteroffer, a contract is established.

In Hyde v. Wrench[xii] case, the defendant, offered to sell the farm he owned to the plaintiff for £1,200, but this was declined by Mr. Hyde. The defendant then decided to make another offer to sell the farm to him for £1,000 and he also made it clear that this would be his final offer regarding the property. In response, Mr. Hyde offered £950 for the farm in his letter which was refused by Mr. Wrench. Thereafter Mr. Hyde agreed to buy the farm for £1,000, which was the sum that had previously been offered. However, Mr. Wrench refused to sell his farm because once Mr. Hyde rejected the offer he placed a counteroffer which was not accepted by the defendant and hence that counteroffer rendered the previous offer invalid.

  • Cross Offer

A cross offer is said to exist when two parties make the exact same offer to each other at the exact same time. This type of offer does not usually exist in the real world since such an offer is based purely on chance. In this situation, there will not be a contract because it cannot be interpreted that one party’s offer is accepted by the other party.

  • Standing Offer

An offer can be called a standing offer if it is meant to remain open for a certain amount of time and can be accepted any time before the deadline. It is also called an open or continuing offer. In Ramsgate Victoria Hotel Company v. Montefeire[xiii] case, the defendant, wanted to purchase shares in the plaintiff’s hotel. He put in his offer to the plaintiff and paid a deposit to his bank account to buy them in June. This was for a certain price. He did not hear anything until six months later, when the offer was accepted, and he received a letter of acceptance from the plaintiff. By this time, the value of shares had dropped, and the defendant was no longer interested. Mr Montefiore had not withdrawn his offer, but he did not go through with the sale. The court held that the offer that defendant had made back in June was no longer valid to form a contract. A reasonable period of time had passed, and the offer had lapsed. The court stated that what would be classed as reasonable time for an offer to lapse would depend on the subject matter.

Conclusion

An offer is a first formation of a valid contract. Without an offer there will not be acceptance and then no contract. Thus, an offer becomes essential element of a valid contract. An examination of offer and acceptance is a standard contract law method used to assess whether a two-party arrangement exists. An offer is a demonstration of their willingness to agree on certain terms from one person to another. If there is an express or implied agreement, a contract will then be formed.

The communication of the offer shall be complete when it comes to the knowledge of the person to whom the offer is made and the communication of the acceptance shall be complete when the acceptance is put in a course of transmission to the offeror. An offermay be revoked anytime before the communication of the acceptance is complete against the proposer/offeror. As an offer is the first step in the formulation of a contract, it is essential to distinguish what type of offer has been made by the offeror, as different types of offers have different types of legal rules being applied to them.

 

FAQs

What Is Meant by An Offer?

In contract law, an offer is a promise in exchange for performance by another party. An offer is the starting point of any agreement. An agreement becomes complete as soon as the offer is accepted and communicated to the person making the offer.

What Are the Essentials of a Valid Offer?

Essentials of a valid offer are as follows-

  1. Intention to create legal obligations
  2. An offer must be express or implied
  3. An offer differs from invitation to offer
  4. An offer must be definite and not vague
  5. An offer cannot prescribe silence as a mode of acceptance
  6. A general offer need not be specifically accepted
  7. Offer must be communicated

What Is Communication of Offer?

According to Section 4 of the Indian Contract Act, 1872 the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. In other words, when the offeree comes to know about the offer the communication is said to be completed.

How Can an Offer Be Revoked?

According to Section 5 of the Indian Contract Act, 1872 a proposal may be revoked at any time before the communication of acceptance is complete as against the proposer, but not afterwards. Situations in which offer can be revoked are as follows-

  1. By communication of notice of revocation by the proposer to the proposee.
    1. If the time prescribed in the proposal has lapsed or if no time is prescribed in the offer, then the proposal will lapse after the passage of a reasonable period of time.
    1. When the proposer dies or becomes insane and if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.
    1. If the acceptor fails to fulfil a condition precedent to the acceptance of the proposal.

What Are Types of Offer?

Types of offer as follows-

  1. General offer
  2. Specific offer
  3. Counteroffer
  4. Cross offer
  5. Standing offer

References

Indian Contract Act, 1872

https://www.google.com/url?q=http://www.legalservicesindia.com/law/article/1591/4/Proposal-Indian-Contract-Act-1872&usg=AOvVaw2wYBGpI8y0j-QECdnBlmzW

https://www.lawteacher.net/modules/contract-law/formation/offer/lecture.php

https://casebrief.fandom.com/wiki/Case_Brief_Wiki


[i] Balfour V. Balfour; 2 K.B. 571 (Court of Appeal 1919)

[ii] Uptron Rural District Council V. Powell, 1942; 1 All ER 220

[iii] Pharmaceutical Society of Great Britain V. Boots Cash Chemists (Southern) Ltd. 1952, 2 Q.B. 795

[iv] Felthouse V. Bindley, 142 All ER 1037

[v] Carlill V. Carbolic Smoke Ball Co. 1893, 1 Q.B. 256

[vi] Lalman Shukla V. Gauri Dutt, 1913; 11 All LJ 489

[vii] Supra note iv

[viii] Household Fire Insurance Co. V. Grant 1879, LR 4 Ex. D216

[ix] Henthorn v Fraser [1892] 2 Ch 27

[x] Harbhajan Lal V. Harcharan Lal, AIR 1925 All 539

[xi] Boulton V. Jones, 1857; 157 ER 232

[xii] Hyde V. Wrench, 1840; 49 ER 132

[xiii] Ramsgate Victoria Hotel Company V. Montefeire, 1866; LR 1 Ex 109

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