Offer or Proposal under Indian Contract Act, 1872

What is an offer or proposal?

Meaning of Offer or Proposal: – When one person signifies his willingness to do or to abstain from doing something with a view of obtaining the assent of others, he is said to make an offer or proposal. The term ‘Offer or Proposal’ has been defined in Section 2(a) of the Indian Contract Act, 1872.

For Example: – A’s willingness to sell his radio set to ‘B’ of worth Rs. 500, if ‘B’ accepts the purchase of the same, then it will amount to a proposal from ‘A’ to ‘B’.

But if a statement is made without any intention to obtain the acceptance of the other party then it will not be considered a proposal.

The Agreement (Offer and Acceptance)

Meaning of an Agreement: – An agreement between the parties is one of the essentials for creating a contract. An agreement is a promise between two entities creating mutual obligations by law. According to section 2(e) of the Act, every promise and every set of promises forming the consideration for each other is an agreement. An agreement arises by an ‘offer or proposal’ by one party and the ‘acceptance’ of the same by the other. In an agreement, there are promises from both the sides.

What are the essentials of an Offer or Proposal?

The essentials of an Offer or Proposal under Indian Contract Act are as follows: –

The person who is making the offer or proposal is known as “promisor” or “offeror” and the person who accepts such an offer will be a “promisee” or “acceptor”.

The proposer must express his/her willingness to do or carry out an action. Only desire is not enough or simply the desire to do/not do something will not constitute an offer.

An offer can be positive or negative. It can be a promise to do some work, and a promise to abstain (not do) some work/service. Both are valid offers.

Communication of Offer

Offer must be communicated: – Section 2 (a) of the Indian Contract Act, 1872, explains that a person makes an offer or proposal “when he signifies (show) his willingness to do or to abstain from doing something”. The emphasis here is upon the requirement that the willingness to make a proposal should be “signified” or “showed”. The term signifies means to communicate or to make it known. It thus requires that the offer must be communicated to the person i.e., the offeree.

Offer How Communicated: – The proposal needs to be communicated to the other party so that its acceptance may constitute a contract. Section 3 of the Indian Contract Act defines the offer and acceptance of a contract. If an offer is sent by the post, it will have no effect until it reaches the offeree.

Communication of Offer (When completes): – An offer to be valid must be communicated. Section 4 of the Indian Contract Act, 1872 says that “the communication of a proposal is complete when it comes to the knowledge of the person for whom it is made”. Communication must be done in some general and appropriate manner.

An offer cannot be accepted unless and until it has been bought to the knowledge of the person for whom it is made. For example: ‘A’ cannot be said to make an offer to ‘B’ unless ‘A’ brings the offer to the knowledge of ‘B’. Here, ‘B’ cannot be said to have accepted the offer, even if he acts according to the term of the offer. Thus, ignorance of an offer does not amount to acceptance of the offer.

What are the different types of offers?

The different types of offers are as follows: –

Specific Offer: – A specific offer refers to a proposal made to a specific person or group of individuals. It can only be accepted by the person or group of persons to whom it is made.

General Offer: – When an offer is made to the general public, it is called a general offer and can be taken up by anyone who wishes to fulfill the terms of the offer. When the person who accepts the offer to whom it is directed, the offeror and the offeree enter into the contract. If the offer is accepted by a large number of people, then the number of contracts formed will be equal to the number of individuals who accept the offer. If a reward is offered for completing a certain task, only the person who completes the task can accept the offer.

Express Offer: – Section 9 of the Indian Contract Act says that “An offer would be an expressed offer when it is made by words of mouth or by writing”. An offer when assented by both parties become an agreement. An agreement when enforceable by law/courts becomes a contract.

Implied Offer: – As mentioned in Section 9, an offer made otherwise than in words is said to be an implied offer. It is an offer incurred from the conduct of the party. For example: A bit at an auction is an implied offer or when a bus company runs buses on a particular route inviting passengers over the route at scheduled fares. The offer of the company is an implied offer.

Cross Offer: – When two parties make similar offers in all respects to each other, in ignorance of each other’s offer, it is called cross offer. In a cross offer both parties state to each other the same proposal. For example: An offer made by ‘A’ to sell to ‘B’ on certain terms and an offer by ‘B’ to buy from ‘A’ on the same terms unaware of the A’s proposal at that time, is an example of a cross-offer.

Counter Offer: – On the other hand, in counter offer there is a rejection of the original offer and a new offer is made that needs acceptance by the original promisor before a contract can be made.

Standing, Open and Continuous Offer: – An offer which is allowed to remain open for acceptance over a period of time is known as a standing, open and continuous offer. When a company requires large quantities of products from time to time, it usually invites tenders for the supply of products through an advertisement. Such a tender or offer is referred to as a standing, open and continuous offer.

What is revocation of offer or proposal?

Meaning of revocation of offer or proposal: – A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

According to Section 5 under Indian Contract Act, “A proposal may be revoked at any time, before the communication of its acceptance is complete, but not afterwards”.

A contract forms only after the acceptance of an offer and then both the parties are bound by their respective promises. Before the acceptance of the offer, it can be revoked. After the acceptance of the offer by the other party, it cannot be revoked.

For example: – A resignation is an offer to quit a post and the same can be withdrawn before the offer is accepted by the competent authority.

Withdrawal of Bids: – In case of sale by auction, the bids made at the auction are offers and the highest offer may be accepted by the auctioneer (agent). In such a case the sale is complete when the auctioneer announces its completion by the fall of the hammer and any bidder can withdraw his bid before the announcement is made. Once the communication of acceptance is complete and a contract has come into existence, the question of revocation of offer does not arise.

What are the modes of revocation of an offer or proposal?

A proposal is revoked by following modes: –

By notice of revocation
By lapse of time
By failure to fulfill a condition precedent
By death or insanity of the offeror

Explanation

By notice of revocation: – A proposal may be revoked by the communication of notice of revocation by the proposer to the other party. Notice of revocation will be effective only if it has been communicated by the proposer (or his agent) and not by anybody else. On this point, English Law is different from Indian Law. In India, the notice of revocation has to be communicated by the proposer only, whereas in english law the offer stands revoked even though the offeree comes to know about it through some other sources and not by the offeror himself.

By lapse of time: – A proposal is revoked by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed it can be revoked by the lapse of reasonable time, without communication of acceptance. No-acceptance within a reasonable time means an implied refusal by the offeree to accept the offer.

By failure to fulfill a condition: – When there is some condition with the offer, such a condition has to be fulfilled by the acceptor before making the acceptance. If the acceptor fails to fulfill the condition precedent to acceptance, the offer stands revoked.

By death or insanity of the offeror: – An offer can be revoked by the death or insanity of the proposer if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance. It means that if the fact of death or insanity has not come to the knowledge of the offeree while he accepts the offer, it is valid acceptance giving rise to the contractual obligations.

Case laws under Offer or Proposal

1. Merritt vs. Merritt

Facts of the case: – The husband and wife were the joint owners of a building which was subject to a mortgage to a building society. The husband left the matrimonial home to live with another woman. At that time, the husband signed a note saying that the wife will pay the entire outstanding amount in respect of the house and in return he will transfer the soled ownership of property into her name.

Judgment of the case: – In this case, the court held that it was clear that the parties intended to create a legal relationship and, therefore, the husband was bound by the contract.

2. Krishnaveni Constructions vs. The X.E.N., Panchayat Raj, Darsi,

In this case, the court held that an offer containing a promise to keep the offer to open for a certain period could be withdrawn unless such a promise was supported by consideration. The condition that a tender cannot be withdrawn before it was accepted, is invalid.