OFFER/PROPOSAL
An offer, also referred to as a proposal, is defined as a declaration
where one person expresses to another their willingness to perform or
refrain from performing a specific act, with the aim of obtaining the
other party's acceptance of the act or abstention (Section 2(a) of The Law
of Contract Act, Cap. 345 [R.E. 2019]). Offers can be categorized as
either positive or negative. A positive offer entails the willingness to
perform a certain action, while a negative offer involves refraining from
an action.
Examples:
1. If A offers to sell his book to B, this constitutes a positive act—a
willingness to perform an action.
2. If A offers not to sue B provided B pays an outstanding amount, this
constitutes a negative act, indicating willingness to refrain from an
action.
HOW AN OFFER IS MADE
An offer may be communicated through actions or omissions intended to
convey the offer (Section 3). It can be expressed in the following
ways:
1. By words (written or spoken): A written offer can be
communicated via letters, advertisements, or messages, while oral offers
may occur in person or over the phone.
2. By conduct: A party’s actions or signs can communicate an
offer. For instance, operating a service without verbal announcements can
signify willingness to offer a service. Silence, however, cannot
constitute an offer.
Examples:
1. A writes to B, offering to sell a house at a specific price. This
constitutes an express offer made by written words.
2. A's motorboat positioned for passenger transport signifies an implied
offer by conduct, as the positioning conveys readiness to perform the
service.
An offer can also arise by omission when conduct suggests assent or
willingness to act.
TYPES OF OFFERS
Offers can be categorized as either specific or general:
1. Specific Offer: Directed to a particular person or group, and
only they can accept it.
2. General Offer: Open to the public at large and can be accepted
by anyone fulfilling its conditions.
Case Reference: In Carlill v. Carbolic Smoke Ball Co. (1893), a company
advertised a reward for using its product as directed.
The plaintiff fulfilled the terms but contracted influenza, successfully
claiming the reward despite no prior personal communication with the
company. This case highlights that general offers bind the offeror to
anyone complying with their terms.
ESSENTIALS OF A VALID OFFER
For an offer to be valid, it must:
a/. Aim to obtain acceptance (Section 2(a)).
b/. Intend to create legal relations (Balfour v. Balfour).
c/. Be definite, unambiguous, and certain, avoiding vague or unclear
terms (Section 29).
d/. Be distinguishable from declarations of intention or invitations to
offer.
Examples:
-
A vague offer to sell "100 quintals of oil" is invalid without
specifying the type. However, if A deals only in coconut oil, the
offer gains clarity.
Invitation to Offer: Advertisements, prospectuses, and price lists
often invite offers but do not constitute offers themselves. For instance,
a store displaying goods with prices invites customers to make purchase
offers. A contract is formed only when the cashier accepts payment
(Pharmaceutical Society of Great Britain v. Boots Cash Chemists).
COMMUNICATION AND ACCEPTANCE
An offer must be communicated to the offeree, who cannot accept it
without prior knowledge. For instance, in Lalman Shukla v. Gauri Dutt, a
servant who fulfilled the terms of an offer without knowing it could not
claim the reward later.
REVOCATION OF OFFERS
Offers may be revoked before acceptance unless consideration or a
specific term restricts withdrawal. However, in cases of standing offers,
contracts arise only upon each act of acceptance, as seen in
Chatturbhuj Vithaldas v. Moreshover Parashram.
CROSS OFFERS AND TERMINATION OF AN OFFER
When two parties unknowingly make identical offers to each other, these
are termed cross-offers, and neither constitutes an acceptance of the
other. Without mutual acceptance, no contract arises. For instance, in
Tinn v. Hoffman & Co. (1873), letters of identical offers crossed in
the post, and the court held that no contract existed.
Termination or Lapse of an Offer occurs in several ways before
acceptance:
1. Lapse of Time: Offers lapse if not accepted within the
stipulated or reasonable time as per Section 6(2) of the Contracts Act.
For example, in Ramsgate Victoria Hotel Co. v. Montefiore (1860), an offer
made in June but accepted in November was deemed lapsed due to
unreasonable delay.
2. Death or Insanity: As per Section 6(4), an offer terminates if
the offeror or offeree dies or becomes insane before acceptance, provided
the other party has knowledge of this fact.
3. Rejection: An outright rejection by the offeree terminates the
offer.
4. Revocation by the Offeror: Offers can be revoked before
acceptance.
5. Non-compliance with Prescribed Mode of Acceptance: If the
offeree fails to accept in the specified or a usual and reasonable manner,
the offer terminates.
6. Counter-offer: Introducing conditions or qualifications to the
original offer constitutes a counter-offer, effectively terminating the
initial offer. For example, in Routledge v. Grant (1828), changing the
date of possession was treated as a counter-offer, negating the original
terms.
7. Conditional Offers: If the condition of the offer is not
accepted, the offer lapses. For instance, if A offers to sell a house to B
for Rs. 12,000 on the condition that leases land to A, the offer is
terminated if B refuses to lease the land.
An offer aims to seek acceptance and create legal obligations. If it
fails due to lapse, revocation, or counter-offer, no contract can
arise.
Acceptance under the Law of Contract Act, Cap. 345 [R.E. 2019]
The Law of Contract Act, Cap. 345 [R.E. 2019], defines acceptance under
Section 2(1)(b) as the act of signifying assent to a proposal, which
transforms the proposal into a contract. Acceptance can be made either
expressly or impliedly. Express acceptance occurs through verbal or
written communication or by performing an act required by the offer, as
demonstrated in Carlill v. Carbolic Smoke Ball Co. For instance, a trader
executing a customer's order by sending goods constitutes acceptance by
conduct, while claiming a reward for finding a lost dog, as per the offer,
constitutes implied acceptance.
Acceptance must adhere to several principles to be valid:
1. Absolute and Unqualified: As per Section 7, acceptance must
align entirely with the offer's terms without variations, as seen in Union
of India v. Babulal. Even slight modifications can convert an acceptance
into a counteroffer, requiring fresh acceptance by the original
offeror.
2. Communication to the Offeror: Acceptance must be conveyed to
the offeror. A mental agreement, as held in Felthouse v. Bindley, does not
suffice. However, in cases of general offers, actions fulfilling the
offer's terms may constitute acceptance without direct communication
(Carlill v. Carbolic Smoke Ball Co).
3. Prescribed Mode of Acceptance: If the proposer specifies a mode
of acceptance, it must be followed. Deviations can be accepted unless the
proposer objects within a reasonable time.
4. Timeliness: Acceptance must occur within the offer's specified
timeframe or, if unspecified, within a reasonable time, as highlighted in
Ramsgate Victoria Hotel Co. v. Montefiore.
5. Response to Offer: There must be a pre-existing offer for
acceptance to follow; one cannot accept retroactively.
6. Before the Offer Lapses: Acceptance is valid only if made prior
to the offer’s lapse, termination, or withdrawal.
7. By the Offeree: A specific offer can only be accepted by the
intended offeree, as illustrated in Boulton v. Jones, while a general
offer can be accepted by anyone meeting its terms.
In addition, the law does not permit agreements to agree in the future,
as they lack definitiveness unless methods for determining uncertain terms
are provided (Foley v. Classique Coaches Ltd). Thus, these rules
collectively establish the framework for a valid and binding acceptance
under Indian contract law.
Communication of Offer, Acceptance, And Revocation.
The validity of an offer and acceptance in contract law hinges on the
principle of communication, which includes:
A. Communication of the Offer:
An offer must be effectively communicated to the offeree, as stipulated
in Section 4 of The Law of Contract Act, Cap. 345 [R.E. 2019]). The
communication is deemed complete when the offeree becomes aware of the
proposal.
Example:
If A offers to sell his house to B through a letter, the communication of
the proposal is complete once B receives the letter.
B. Communication of Acceptance:
The completion of the communication of acceptance has two
dimensions:
a/. Against the proposer: Acceptance is complete when it is sent by the
acceptor, making it irrevocable by the proposer.
b/. Against the acceptor: Acceptance is complete only when it is received
by the proposer.
Example:
If A offers to sell his house to B via a letter, and B accepts by posting
a letter back:
a./ For A, the communication of acceptance is complete when B posts the
letter.
b/. For B, it is complete when A receives the letter.
C. Communication of Revocation:
The revocation of an offer or acceptance is considered complete:
a/. Against the revoking party: When it is sent and leaves the control of
the revoking party.
b/. Against the receiving party: When it comes to their knowledge.
Example:
If A offers to sell his house to B and revokes the proposal via
telegram:
a/. The revocation is complete for A when the telegram is
dispatched.
b/. It is complete for B upon receipt of the telegram.
D. Revocation Rules under Section 5:
A proposal can be revoked at any time before the acceptance is
communicated to the proposer but not afterward.
An acceptance can be revoked before it is communicated to the proposer
but not afterward.
Example:
If A proposes to sell his house via a letter, and B accepts through a
posted letter:
A can revoke the proposal before or at the moment B posts the acceptance
letter.
B can revoke the acceptance before or at the moment A receives the
acceptance letter.
E. Contracts via Telephone or Telex:
Contracts formed during telephone conversations are established
immediately upon acceptance, provided the offeror hears and understands
the acceptance. If the acceptance is not received by the offeror, no
contract is formed.
Unlike postal contracts, instantaneous communication methods require
actual receipt of the acceptance to conclude the contract.
F. Comparison with English Law:
Indian and English laws differ in their treatment of postal
communication. In India, the post office acts as the agent for both the
offeror and the offeree. Consequently, revocation is permissible under
certain conditions. However, in English law, the post office serves
exclusively as the offeror’s agent, making acceptance irrevocable once
posted. Sir William Anson famously likened acceptance to a "lighted match
to a train of gunpowder," emphasizing its irrevocable nature in English
law.
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