Proposal / Offer
A proposal is the starting point of any contract. Article 2(a) of ICA, 1872 defines
it 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.”
Section 2(c): “The person making the proposal is called the promisor, and the
person accepting the proposal is called a promisee.”
A. Communication of Proposal
Section 3: “The communication of proposal, the acceptance of proposals, and the
revocation of proposals and acceptances, respectively are deemed to be made by
any act or omission of the party proposing, accepting, or revoking, by which he
intends to communicate such proposal, acceptance, or revocation, or which has the
effect of communicating it.”
B. Implied Proposals
Words are not the only medium of expression. Conduct may often convey as
clearly as words a promise, or an assent to a proposed promise.
An offer which is expressed by conduct is called an “implied offer” and the one
which is expressed by words, written or spoken, is called an “expressed offer”.
Section 9: Promises, express and implied – “In so far as the proposal or
acceptance of any promise is made in words, the promise is said to be expressed. In
so far as such proposal or acceptance is made otherwise than in words, the promise
is said to be implied.”
A bid at an auction is an implied offer to buy. Similarly, consuming eatables in
self-serve restaurants create implied promises to pay for the benefits enjoyed.
Case Law: Upton-on-Severn RDC v. Powell, 1942
Afire broke out in the defendant’s farm. He believed that he was entitled to the free
services of Upton Fire Brigade and, therefore, summoned it. The brigade put out
the fire. It then turned out that the defendant’s farm was not within free service
zone of the Upton, which therefore, compensation for the services.
The court said: “The truth of the matter is that the defendant wanted the services of
Upton, in response to that request, provided the service. Hence, the service was
rendered on an implied promise to pay for them.”
Section 9 was also applied by the Supreme Court in the case of: Haji Mohammed
Ishaq v. Mohammed Iqbal and Mohammed Ali & Co., 1978., where on the
orders of a go between man certain goods were supplied by the plaintiff on his own
account to the defendants. The defendants clearly and unerringly accepted the
goods and never repudiating any of the numerous letters and telegrams of the
plaintiff demanding the money from them, clearly showed that a direct contract
which in law is called an implied contract by conduct was brought about between
them.
C. Communication when complete
Section 4- “The communication of the proposal is complete when it comes to the
knowledge of the person to whom it is made.”
Case Law: Lalman Shukla v. Gauri Dutt, 1913
Defendant’s nephew absconded from home. He sent his servant in search of the
boy. When the servant had left, the defendants by hand bills offered to pay
Rs.501/- to anybody discovering the boy. The servant came to know of this offer
only when he had already traced the missing child. He, however, brought an action
to recover the reward. But this action failed.
It was held that, in order to constitute a contract, there must be an acceptance of an
offer and there can be no acceptance unless there is knowledge of the offer.
This principle has been carried a little further in an Australian Case of R. v.
Clarke, 1927.
The facts of the case were: The Australian Government had offered a reward of
1000 Pounds to anyone giving information about certain murderers. The offer
further added that if the information was given by an accomplice, not being
himself the murderer, he would also be entitled to a free pardon. The plaintiff,
being an accomplice, saw the offer and having been so excited by the hope of
pardon, he gave the information to save himself, completely forgetting the reward.
He therefore, could not recover the reward.
So, even if the acceptor had once known of the offer but had completely forgotten
about it at the time of acceptance, he would be in no better position than a person
who had not heard of the offer at all.
INTENTION TO CONTRACT
There is no provision in the Indian Contract Act requiring that an offer or its
acceptance should be made with the intention of creating legal relationship.
But in English Law it is a settled principle that “to create a contract there must be a
common intention of the parties to enter into legal obligations.”
Case Laws
1. Balfour v. Balfour, 1919
“The defendant and his wife were enjoying leave in England. When the defendant
was due to return to Ceylon, where he was employed, his wife was advised by a
reason of her health, to remain in England. The defendant agreed to send her an
amount of 30 Pounds a month for the probable expenses of maintenance. He did
send the amount for the sometime, but afterwards differences arose which resulted
in their separation and the allowance fell into the arrears. The wife’s action to
recover the arrears was dismissed.”
2. Jones v. Padavatton, 1969
“A divorced woman was living in Washington with her son where she was
employed as an assistant accountant in the Indian Embassy. Her mother was in
Trinidad and wished her daughter to be near her. The mother persuaded her
daughter, much against her will, to leave service, to take legal education in
England and finally to come back to Trinidad as a practising lawyer. Subsequently,
the mother bought a house in England, part of which was allowed to the daughter
and the rest tenanted out. For five long years, the daughter could not complete her
education. She also remarried in the meantime. Differences arose between them
and the mother stopped payments and also commenced proceedings to evict the
daughter and she was successful.”
Also, the mere opening of a joint bank account between a man and his wife or the
man promising to buy her a car in an effort to improve their strained matrimonial
relationship has been held to be a purely domestic arrangement not resulting in any
legal relationship.
3. Meritt v. Meritt, 1970
The husband and the 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, at the insistence of the wife, the husband signed
the note saying that the wife will pay all the outstanding amount in respect of the
house and in return the husband will agree to transfer the property into her sole
ownership. It was held that in this case it was clear that the parties intended to
create a legal relationship and therefore, the husband was bound by the contract.
4. Banwari Lal v. Sukhdarshan Dayal, 1973
In an auction sale, the plots of land, a loudspeaker was spelling out the terms, etc,
for the sale, one of the statements being that a plot of certain dimensions would be
reserved for a Dharamshala (public inn). Subsequently, that plot was also sold for
private purposes. The purchasers sought to restrain this.
It was held that, Microphones have not yet acquired notoriety as carriers of binding
representations. Promises held out over loudspeakers are often claptraps of politics.
Letters of intent
A letter of intent merely indicates a party’s intention to enter into a contract on the
lines suggested in the letter. It may become a prelude to a contract.
KINDS OF OFFER
There are two types of offer : (a) specific offers, where an offer is made to a
particular individual or a party, and, (b) general offers, where the offer is made to
the public at large.
GENERAL OFFERS
Unlike the other offers, it is an offer made to the public at large. It is not binding in
nature. The person, who accepts this offer, generally by performing the condition
of the proposal, can bind the person making the offer. Although a general offer is
made to the public at large, the contract is concluded only with that person who
acts upon the terms of the offer, viz., who accepts the offer.
Case Laws:
1. Carlill v. Carbolic Smoke Ball Co., 1893
It was the landmark judgement. The defendant advertised their product “Carbolic
Smoke Ball”, a preventive remedy against influenza. In the advertisement they
offered to pay a sum of 100 Pounds as a reward to anyone who contracted
influenza, or any other disease caused by taking cold, after having used the smoke
ball three times a day for two weeks, in accordance with the printed direction.
They also announced that a sum of 100 Pounds had been deposited with the
Alliance Bank to show their sincerety in the matter. The plaintiff bought the smoke
ball, used it according to the directions printed, but still caught the influenza. She
sued the defendants to claim the reward of 100 Pounds.
It was held that this being the general offer had ripened into a contract with the
plaintiff by her act of performance of the required conditions and thus accepting
the offer. She was, therefore, entitled to claim the reward.
Section 8: Acceptance by performing conditions, or receiving consideration:
“Performance of the conditions of a proposal, or the acceptance of any
consideration for a reciprocal promise which may be offered with a proposal, is an
acceptance of the proposal.
Case Law:
1. Har Bhajan Lal v. Har Charan Lal, 1925
A young boy ran away from his father’s home. The father eventually issued a
pamphlet, offering the reward in these terms: “Anybody who finds trace of the boy
and bring him home, will get Rs. 500/-.” The plaintiff was at the dharamshala of a
railway station, there he saw the boy, took him to the police station and sent a
telegram to the boy’s father that he had found his son. The father refused to give
him the reward.
It was held that the handbill was an offer open to the whole world and capable of
acceptance of any person who fulfilled the condition, and that the plaintiff
substantially performed the condition and was entitled to the amount offered.
2. Malraju Lakshmi Venhayyamma v. Venkata Narasimha Appa Rao, 1915-
16
Upon the marriage of the appellant, her aunt, Papamma, a wealthy Hindu widow
with whom she resided since childhood, promised that the appellant and her
husband would reside with her, she would purchase immovable property for the
appellant. The appellant and her husband accordingly resided with the aunt. She
did purchase some property but under her name. This dissatisfied the appellant
who with her husband ceased to reside with the aunt. The aunt wrote to the
appellant that the property had been purchased for the appellant and would be
transferred to her upon the aunt’s death. The appellant and her husband thereafter
resided with the aunt until her death. This was held to be a sufficient acceptance of
the promise.
General offer of continuing nature
Where a general offer is of continuing nature, as it was, for example, in the Smoke
Ball case, it will be open for acceptance to any number of persons until it is
retracted. But where an offer requires some information as to a missing thing, it is
closed as soon as the first information comes in.
OFFER AND INVITATION TO TREAT
An offer should be distinguished from an invitation to receive offers. When a man
advertises that he has got a stock of books to sell, or houses to let, there is no offer
to be bound by any contract. “Such advertisements are offers to negotiate – offers
to receive offers.”
Where a party, without expressing his final willingness, proposes certain terms on
which he is willing to negotiate, he does not make an offer, but only invites the
other party to make an offer on those terms. This is perhaps the basic difference
between an “offer” and an “invitation” to receive offers.
Case Laws
1. Harvey v. Facey, 1893
The plaintiffs telegraphed to the defendants, writing: “Will you sell us Bumper
Hall Pen? Telegraph lowest cash price.” The defendants replied, also by the
telegram: “Lowest price for Bumper Hall Pen is 900 Pounds.”
The plaintiffs immediately sent their last telegram stating: “We agree to buy
Bumper Hall Pen for 900 Pounds asked by you.” The defendants, however, refused
to sell the plot of land at that price. The plaintiffs contended that by quoting their
minimum price in response to the enquiry the defendants had made an offer to sell
at that price. But the Judicial Committee turned down the suggestion. Their
Lordship pointed out that in their first telegram, the plaintiffs had asked two
questions, first, as to the willingness to sell and, second, as to the lowest price. The
defendants only answered the second, and gave only the lowest reply. They
reserved their answer as to the willingness to sell. Thus, they had made no offer.
The last telegram of the plaintiffs was an offer to buy, but that was never accepted
by the defendants.
Catalogues and display of goods and announcement to hold auction, all come
under invitation to treat.
Case Law
1. Pharmaceutical Society of Great Britain v. Boots Cash Chemists Southern
Ltd., 1952
The defendants were having the business of retail sale of drugs. Medicines were
displayed on the shelves and their retail prices were also indicated. They had “self-
service” system. On entry into the shop a customer was given a wire basket. After
selecting the articles needed by the customer he could put them in the basket and
take them to the cash desk. The defendants had put a registered pharmacist near the
cash counter, who had been authorised to stop any customer removing any drug
from the premises.
It was held that the display of articles, even on a “self - service” basis was not an
offer but was merely an invitation to treat/offer. When the customer selected an
article and brought the same to the cash desk that amounted to an offer to buy the
goods. The defendants were, therefore, free to accept the offer or not.
2. Harris v. Nickerson, 1873
The defendant advertised a sale by auction. The plaintiff travelled to the advertised
place of auction to find that the defendant had cancelled the auction sale. He
brought an action against the defendant to recover the expenses of his travel. It was
held that he was not entitled to the same as there was yet no contract between the
two parties, which could make the defendant liable.
3. Fisher v. Bell, 1961
The defendant had a flick knife displayed in his shop window with a price tag on it.
Statute made it a criminal offence to ‘offer’ such flick knives for sale. His
conviction was quashed as goods on display in shops are not ‘offers’ in the
technical sense but just an invitation to treat and thus no liability arose.
4. Spencer v. Harding, 1870
The defendants advertised a sale by tender of the stock in trade belonging Eilback
& Co. The advertisement specifies where the goods could be viewed, the time of
opening for tenders and that the goods must be paid for in cash. No reserve was
stated. The claimant submitted the highest tender but the defendant refused to sell
to him.
It was held that unless the advertisement specifies that the highest tender would be
accepted there was no obligation to sell to the person submitting the highest tender.
The advert amounted to an invitation to treat, the tender was an offer, the
defendant could choose whether to accept the offer or not.
TENDERS
Tenders may be of two different types:-
1. Specific Purchase: A government department wants to purchase three new
computers and thus invites tenders in accordance with the specifications. The
advertisement may be seen as invitation to treat, the tender is then an offer which
the department may accept or not.
2. Requirement Contract: The government department wants someone to give
tenders for the supply of PCs. The tenderer puts in a price per unit. I f department
says okay, it is not a completion of contract. It will be a standing offer.
If an advertisement asks for tenders, that advertisement may be seen as an
invitation to treat. Where a tender is submitted on a required basis, it may be seen
as an offer.
The government department may say that the supplier has a contract. But actually,
there is no contract under law because there is no legally binding commitment on
either side. When the department places an order for a specified no. of PCs, it
amounts to the acceptance of standing offer contained in the tender and may
amount to the completion of contract at that stage.
BILATERAL CONTRACT
The typical model of the bilateral contract arises where ‘A’ promises to sell goods
to ‘B’ in return for ‘B’ promising to pay the purchasing price. In this situation, the
contract is bilateral, because as soon as these promises are exchanged, there is a
contract to which both are bound.
Illustration: ‘A’ says to ‘B’: If you dig my garden next Tuesday, I will pay you 20
pounds. ‘B’ makes no commitment but says: “I am not sure that I shall be able to
do, but if I do, I shall be happy to take 20 pounds.” This arrangement does not
constitute bilateral contract.
‘A’ has committed himself to pay the 20 pounds in certain circumstances but ‘B’
has made no commitment at all. He is totally free to decide whether or not, he
wants to dig ‘A’s’ garden. Because of its one-sided nature, this type of agreement
is known as unilateral contract.
COUNTER OFFER
Where an offer containing certain terms and conditions has been made to a party,
and that party by adding to the conditions makes another offer, it is known as
counter offer and it amounts to the rejection of the original offer made to him.
Case Law
1. Hyde v. Wrench, 1840
The defendant made an offer to the plaintiff for the sale of a farm for 1,000
Pounds. The plaintiff rejected this offer and said that he will pay only 950 pounds
to which the defendant did not agree. Thereupon he said that he was willing to pay
1,000 pounds to which also defendant did not agree. On bringing the action against
the defendant, it was held that once the plaintiff rejected the offer by making his
counter offer, it made the original offer to lapse, and therefore, no contract had
resulted in the case.
CROSS OFFERS
When the offers made by two persons to each other containing similar terms of
bargain cross each other in post, they are known as Cross Offers. In these cross
offers, even though both the parties intended the same bargain, there would arise
no contract. A contract could arise only if either of the parties, after having the
knowledge of the offer, had accepted the same.
Case Law
1. Tinn v. Hoffman
A wrote to B indicating his willingness to sell 800 tons of iron at 69 shillings per
ton. On the same day, B also wrote to A offering to buy 800 tons of iron at the
same rate of 69 shillings per ton. The two letters crossed each other in post. B
brought an action against A for the supply of iron contending that a valid contract
had been created between the two parties. It was held that there were only two
cross offers and the offer of neither of the parties having been accepted by the
other, there was no contract which could be enforced.
STANDING, OPEN or CONTINUING OFFER
An offer which is allowed to remain open for acceptance over a period of time is
known as a standing, open or a continuing offer. For example, an offer to supply
1,000 bags of wheat from 1st January to 31st December, in accordance with the
orders which may be placed from time to time, is a standing offer. As and when the
orders are placed illustration if an order for the supply of 100 bags of wheat is
placed on 15th January, there is acceptances of the offer to that extent and the
offeror becomes bound to supply those 100 bags of wheat. So far as the remaining
quantity is concerned, this offer can be revoked just like any other offer.
Acceptance of a tender for the supply of goods is a kind of standing offer. An
advertisement inviting tenders is merely an invitation for quotations. When the
tender is approved, it becomes a standing offer. As and when an order is placed on
the basis of the tender that amounts to acceptance of the offer and results in a
binding contract. Such an offer may be revoked or withdrawn before the order has
been placed. Even though the offer is generally made open till a particular time, it
may be revoked earlier than that, because the offeror is not bound to keep the offer
subsisting and he may revoke it at any time before its acceptance.
Case Law
1. Bengal Coal Co. v. Homee Wadia & Co., 1899
The defendants (Bengal Coal Co.) agreed to supply coal to the plaintiffs (Homee
Wadia & Co.) up to a certain quantity at an agreed price for a period of 12 months,
as may be required by the plaintiffs from time to time. The plaintiffs placed orders
for the supply of some coal and the same were complied with. Before the expiry of
the said period of 12 months, the defendants withdrew their offer to supply further
coal, and refused to comply with the orders placed thereafter. They were sued for
the breach of contract. It was held that there was no contract between the plaintiff
and the defendant and, therefore, there can be no liability for the breach of
contract. There was simply a continuing offer to supply coal. They were bound to
supply coal only as regards orders which had already been placed, but were free to
revoke their offer for the supply of coal thereafter.
ESSENTIALS OF AN OFFER
Now, after dealing with the above mentioned facts, we can say that there are four
essentials to constitute a valid offer. These are:
1. Offer to obtain the consent of the other party.
2. Must be communicated.
3. Must be specific and clear.
4. Should not be an invitation to treat.
