What is Offer ?
Offer is a proposal by one party to another to enter into a legally binding agreement with him. A proposal is an expression of will or intention. The word proposal is synonymous with the English word offer. For example, R tells S, "I am willing to sell my machine for Rs.10,000, Are you ready to buy?". This is a clear offer from R to S.
How an Offer is made ?
An offer to an agreement can be made by:
1) Express Offer-Any Act:
An offer can be made by an act in the following ways:
i) By Words (Whether Written or Oral):
The written offer can be made by letters, telegrams, telex messages, advertisements, etc. The oral offer can be made either by person or over telephone.
ii) By Conduct:
The offer may be made by positive acts or signs so that the person acting or making signs mean to say or convey. However, silence of a party can in no case amount to offer by conduct.
For example,
- a) A proposes, by letter, to sell a house to B at a certain price. This is an offer by an act by written words (i.e., letter). This is also an express offer.
- b) A proposes, over telephone, to sell a house to B at a certain price. This is an offer by act (by oral words). This is an express offer.
2) Implied Offer-By Omission:
An offer can also be made by a party by omission (to do something). Omission of the party proposing by which he intends to communicate such proposal or which has the effect of communicating it to the other. This includes such conduct or forbearance on one's part that the other person takes it as his willingness or assent. An offer implied from the conduct of the parties or from the circumstances of the case is known as implied offer.
For example,
- a) A owns a motor boat for taking people from Mumbai to Goa. The boat is in the waters at the Gateway of India. This is an offer by conduct to take passengers from Mumbai to Goa. He need not speak or call the passengers. The very fact that his motor boat is in the waters near Gateway of India signifies his willingness to do an act with a view to obtaining the assent of the other. This is an example of an implied offer.
- b) A offers not to file a suit against B, if the latter pays A the amount of Rs.200 outstanding. This is an offer by abstinence or omission to do something.
Essential Elements of Valid Offer
Essential elements of valid offer are as follows:
1) Offer must be Capable of Creating a Legal Relationship:
If the offer does not intend to give rise to legal consequences, it is not a valid offer in the eye of law.
For example, an offer to a friend to dine at the offeror's place, or an offer to one's wife to show her a movie is not a valid offer and as such cannot give rise to a binding agreement, even though it is accepted and there is consideration, because in social agreements or domestic arrangements the presumption is that the parties do not intend legal consequences to follow the breach of agreement.
2) Offer must be Certain, Definite and Not Vague:
If the terms of an offer ore vague or Indefinite, its acceptance cannot create any contractual relationship. But if the agreement contains machinery for ascertaining a vague term, the agreement is not void on the ground of its being vague.
For example, A offers to sell B a 100 quintals of oil, there is nothing whatever to show what kind of oil was intended. The offer is not capable of being accepted for want of certainty. But if in the above example, A is a dealer in coconut oil only, it shall constitute a valid offer since the nature of A's trade affords an indication as to which oil is being offered.
3) Offer must be Expressed or Implied:
An offer may be made either by words or by conduct. An offer which is expressed by words, spoken or written, is called an express offer and the one which is inferred from the conduct of a person or the circumstances of the case is called an implied offer.
For example, M says to N that he is willing to sell his motorcycle to him for Rs.20,000. This is an expressed offer.
4) Offer must be distinguished from an Invitation to Offer:
An offer must be distinguished from an invitation to offer. In case of an invitation to offer, the person making an invitation to others to make an offer to him. It is prelude to an offer inviting negotiations or preliminary discussions.
For example, A advertises to sell his house. B, C, and D offer to purchase the house at a certain price. A refuses to accept all the offers. A can do so, as the advertisement issued by A is not an offer but an invitation to an offer. It is B, C, and D who actually offer and it is for A to accept the same or not.
5) An offer may be Specific or General:
An offer is said to be specific when it is made to a definite person or persons. Such an offer can be accepted only by the person or persons to whom it is made. A 'general offer', on the other hand, is one which is made to the world at large or public in general and may be accepted by any person who fulfils the requisite conditions. Advertisements are the example of general contract.
For example, M makes on offer to N to sell his bicycle for Rs.500, there is a specific offer and N alone can accept it.
6) Offer must be communicated:
An offer, to be complete, must be communicated to the person to whom it is made. Unless an offer is communicated, there can be no acceptance by it. An acceptance of an offer, in ignorance of the offer, is no acceptance and does not create any right on the acceptοr.
For example, A, without knowing that a reward has been offered for the arrest of a particular criminal, catches the criminal and gives the information to the superintendent of police. A, cannot recover the reward as he cannot be said to have accepted the offer when he was not at all aware of it.
7) Offer must be made with a View to Obtaining the Consent of the Offeree:
An offer is effective only when It is communicated to the offeree. Until the offer is made known to the offeree, there can be no acceptance and no contract. Doing anything in ignorance of the offer can never be treated as its acceptance, for, there was never a consensus of wills. This applies to both specific and general offers.
8) Offer may be Conditional:
An offeror may attach any terms and conditions to the offer he makes. He may even prescribe the mode of acceptance. The offeree will have to accept all the terms of the offer. There is no contract, unless all the terms of the offer are complied with and accepted in the mode prescribed.
9) No Term the Non-Compliance of which Amounts to Acceptance:
The offer should not contain the term of non-compliance, which would amount of acceptance. For example, a man cannot say that if acceptance is not communicated by a certain time the offer would be considered as accepted.
For example, X writes a letter to Y. I offer to sell my car for Rs.1,00,000. If 1 do not receive your reply by Friday next, I shall assume that you have accepted the offer. Here if Y does not reply, it does not mean that he has accepted the offer.
Classification of Offer
Offer can be classified into:
1) General Offer:
It is an offer made to the public in general and hence anyone can accept and do the desired act. Section 8 of the Indian Contract Act points out that performance of the conditions of a proposal is an acceptance of the proposal. Where a general offer is of continuing nature, it will be open for acceptance to any number of persons until it is retracted.
2) Special Offer:
When offer is made to a definite person, it is known as specific offer and such offers can be accepted only by that specified person.
3) Cross Offer:
When two parties exchange Identical offers in ignorance at the time of each other's offer, the offers are called Cross offers. There is no biding contract is such a case, as one's offer cannot be construed as acceptance by the other.
4) Counter Offer:
When the offeree offers to qualified acceptance of the offer subject to modifications and variations in the terms of original offer, he is said to have made a counter offer. Counter offer amounts to rejection of the original offer.
5) Standing, Open or Continuing Offer:
An offer, which is allowed to remain open for acceptance over a period of Ume, is known as a standing. open or continuing offer. Tender for supply of goods is a kind of standing offer.
Lapse of an Offer
An offer must be accepted before it lapses (i.e., comes to an end). An offer may come to end in any of the ways, which are as follows:
1) By Revocation:
An offer lapses if the offeror revokes the offer before its acceptance by the offeree. According to Section 5 of the Indian Contract Act, a proposal may be revoked at any time before the communication of acceptance is complete as against the proposer but not afterwards.
For example, X of Agra offer by a letter dated 1 January sent by post to sell his car to Y of Delhi for Rs.1,00,000, Y accepts the offer on 7 January at 1 p.m. by a letter sent by post. Here, X may revoke his offer at any time before 1 p.m. on 7th January but not afterwards.
2) By Lapse of Time:
An offer lapses if it is not accepted within the fixed time (if any prescribed in the offer) or within reasonable time (if no time is prescribed in the offer).
For example, an offer to buy shares of a Company was made in June but the acceptance was communicated in November. It was held that offer to buy shares had lapsed because it was not accepted within a reasonable time.
3) By Death or Insanity of the Offeror or Offeree:
An offer lapses by the death or insanity of the offeror if the fact of his death or insanity comes to the knowledge of the acceptor before he makes his acceptance. In other words, if the offer is accepted in ignorance of the death or insanity of the offeror, there will be a valid contract. It may be noted that in English law the death of the offeror terminates the offer even if acceptance is mode in ignorance of the death. An offer also comes to an end by the death or insanity of the offeree if the offeree dies or becomes insane before accepting the offer because an offer can be accepted only by the offeree and not by any other person.
4) By Failure to Accept Condition Precedent:
An offer lapses if it is accepted without fulfilling the conditions of the offer.
For example, X offered to sell his car to Y for Rs.1,00,000 subject to the condition that Y should pay an advance of Rs.20,000 before a certain date, Y accepted the offer but did not send an advance of Rs.20,000. In this case, the offer has lapsed because the advance was not paid.
5) By Counter Offer:
An offer lapses if the counter offer is made because a counter offer amounts to rejection of the original offer. Counter means making a fresh offer instead of accepting the original offer.
For example, X offered to sell his ear to Y for Rs.1,00,000. Y said that he would bay it for Rs.90,000. X refused to sell for Rs.90,000. Subsequently, Y offered to buy the car for Rs.1,00,000. Here, Y's offer to buy for Rs.90,000 is a counter offer which terminates the original offer. Y's second offer to buy for Rs.1,00,000 is n fresh offer and not an acceptance of the original offer.
6) By Not Accepting in the Prescribed Mode or Usual Mode:
An offer if it is not accepted in the specific manner (if any, prescribed in the offer) or in some usual and reasonable manner (if no manner has been prescribed in the offer).
For example, X offered to sell his car to Y for Rs.1,00,000 end wrote to Y "Send your acceptance by telegram". Y sent acceptance by an ordinary letter. X can reject such acceptance.
7) By Rejection of Offer by Offeree:
An offer lapses if it is rejected by the offeree. An offer is said to be rejected if the offeree expressly rejects it or accepts it subject to certain conditions. It may be noted that once an offer is rejected, it cannot be revived subsequently.
8) By Subsequent Illegality or Destruction of Subject-Matter of the Offer:
An offer lapses if it becomes illegal or the subject-matter is destroyed before its acceptance by offeree.
For example, X of Delhi offered supply of 100 tonne of sugar to Y at Mumbai on a certain date. Before this offer is accepted by Y, the Central Government issued an order prohibiting the inter-state, movement of sugar. Here, X's offer has come to an end.
Acceptance [Section 2(b)]
The assent given to a proposal may be understood as acceptance. A proposal when accepted becomes a promise. Acceptance means giving content to the offer. It is an expression by the offeree of his willingness to be bound by the terms of the offer. In other words, offer and acceptance combine together to form a contract. An application for share in a company is in the nature of offer, while the allotment of the shares by the company is an acceptance resulting in a contract. An acceptance once completed cannot be revoked.
For example, A offers to sell his car to B for 1,00,000. B agrees to buy the car for 1,00,000. B's act is an acceptance of A's offer.
Who Can Accept an Offer ?
In general, an offer can be accepted only by the person or persons to whom it is made.
1) In Case of Specific Offer:
An offer made to a definite person or particular group of persons (called specific offer) can be accepted only by that definite person or that particular group of persons to whom it has been made and none else.
For example, X sold his business to Y but this fact was not known to an old customer Z. Z placed an order for certain goods to X by nome. Y supplied those goods to Z. It was held that there was no contract between Y and Z, because Z never made any offer to Y.
2) In Case of General Offer:
An offer mode 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.
For example, A Company advertised that it would pay Rs.100 to anyone who contracts influenza after using the smoke balls of the company according to the printed directions. Mrs. Arora used the smoke balls according to the printed directions but subsequently she contracted influenza. She filed a suit for the reward. It was held that she was entitled to recover the reward because she had accepted the offer by complying with.
How an Acceptance is made ?
Like an offer, an acceptance may also be either an 'Implied acceptance' or 'express acceptance':
1) Express Acceptance:
An express acceptance is one which is made by words spoken or written.
For example, X says to Y. "Will you purchase my car for 1,00,000?" Then Y says, "I am ready purchase your car for 1,00,000".
2) Implied Acceptance:
An implied acceptance is one which is made otherwise than in words. In other words, it is inferred from the conduct of the person or the circumstances of the particular case.
For example, A transport company runs buses on different routes to carry passengers. X, a passenger boards the bus. X's act is an implied acceptance by X and he is bound to pay the fare.
Essentials of Valid Acceptance
Essentials of valid acceptance are as follows:
1) Absolute and Unqualified or Unconditional:
According to Section 7(1) of the Indian Contract Act, 1872, "In order to convert a proposal into a promise, the acceptance must be absolute and unqualified". It means that an offer must be accepted as it is without any reservation, variation or condition. A qualified and conditional acceptance amounts to marking of a counter offer which puts an end to the original offer and it cannot be revived by subsequent acceptance.
2) Within Proper Time:
Acceptance must be given within proper time. Proper time would be the time specified by the offeror's. If no time has been specified by the offeror, then the acceptance must be given within reasonable time. In case of any conflict, the length of reasonable time would be determined by Court depending upon the circumstances of the case. Acceptance must be given before the offer lapses or is revoked or is withdrawn.
3) Must be Communicated:
The acceptance must be signified (i.e. indicated or declared). In other words the acceptance is complete only when it has been communicated to the offeror. A mere mental determination to accept is no acceptance in the eyes of law unless there is some external manifestation of that determination by words or conduct.
4) Must be According to the Prescribed Mode:
Where the offeror prescribes a particular mode of acceptance, then the acceptor should follow that mode. In case no mode of acceptance is prescribed by the proposer, then the acceptance must be according to some usual and reasonable mode. If the proposer prescribed a manner in which it is to be accepted, and the acceptance is not made in such a manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he falls to do so, he accepts the acceptance.
5) Acceptance Must be Given only by the Person to whom the Offer is Made:
An offer can be accepted only by the person or persons to whom it is made and with whom it Imports an intention to contract; it cannot be accepted by another person without the consent of the offeror. The rule of law is clear that "if you propose to make a contract with A, then B cannot substitute himself for A without your consent".
6) Acceptance must succeed the Offer:
Acceptance must be given after receiving the offer. It should not precede the offer. If the acceptance precedes an offer, it is not a valid acceptance sod does not result in a contract.
7) Offer Once Rejected cannot be accepted:
Offer once rejected cannot be accepted again unless a fresh offer is made.
Communication, Acceptance & Revocation of Offer [Section 3]
When the contracting parties are facing each other. there is no problem of communication, because there is instantaneous communication of offer and acceptance. In such a case the question of revocation does not arise since the offer and its acceptance are made instantly. The difficulty arises when the contracting parties are living at a distance and they utilize the services of the post office or telephone. In such cases it is very much relevant for us to know the exact time when the offer or acceptance is made or complete.
Modes of Revocation of an Offer [Section 6]
Various modes of revocating an offer are as follows:
1) By Notice of Revocation:
Offer may be revoked by a communication of a notice of revocation by the offeree to the other party before acceptance is complete against the offeror himself. An offer made in writing may be revoked by words of mouth. The notice of revocation may not always be express. A notice of revocation to be effective must be communicated to the offeree.
2) By Lapse of Time:
A proposal will come to an end by the lapse of time prescribed in such proposal for its acceptance or, if no time is so prescribed by the lapse of time of reasonable time is a question of fact depending upon the circumstances of each case. Where the subject matter of the contract is an article, like gold, the parties of which fluctuate daily in the market. very short period will be regarded as reasonable made late in November.
3) By Non-Fulfilment of Condition Precedent:
A proposal is revoked when the acceptor fails to fulfil a condition precedent to the acceptance of the proposal which was conditional offer. Thus, X may offer to sell certain goods to Y on a condition that Y pays a certain amount before a certain date.
4) By Death or Insanity.
A proposal is 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.
5) By Counter Offer:
An offer comes to end when the offeree makes a counter offer or rejects the offer. Where an offer is accepted with some modification in the terms of the offer or with some other condition not forming part of the offer, such qualified acceptance amount to a counter offer.
6) By the Non-Acceptance of the Offer According to the Prescribed or Usual Mode:
The offer will also stand revoked if it has not been accepted according to the prescribed.
7) By Subsequent Illegality:
An offer lapses if it becomes illegal after it is made and before it is accepted. Thus, where an offer is made to sell 10 bags of wheat for ₹2,500 and before it is accepted, a law prohibiting the sate of wheat by private individual is entered, the offer comes to end.
When is Communication Complete [Section 4]
Communication completes when there is:
1) Communication of Offer:
The communication of an offer is complete when it comes to the knowledge of the person to whom it is made. An offer may be communicated either by words spoken or written or it may be inferred from the conduct of the parties. When a proposal is made by post its communication will be complete when the letter containing the proposal reaches the person to whom it is made.
For example, A makes a proposal to B to sell his house for 2 lac, The letter is posted on 10 March. This letter reaches B on 12 instant. The offer is said to have been communicated on 12 March when B receives the letter.
2) Communication an Acceptance:
Communication of an acceptance is complete:
- As against the proposer, when it is put in course of transmission to him so as to be out of the power of the acceptor to withdraw the same.
- As against the acceptor, when it comes to the knowledge of the proposer.
When a proposal is accepted by a letter sent by post the communication of acceptance will be complete as against the proposer when the letter of acceptance is posted and as against the acceptor when the letter reaches the proposer.
For example, B accepts A's proposal and sends his acceptance by post on 14. The communication of acceptance as against A is complete on 14, i.e., when the letter is posted and as against B it will be complete when the letter reaches A. Suppose this letter of acceptance was duly posted but was delayed in post or lost in transit, even then A will be bound by B's acceptance.
The rule is that the proposer becomes bound by the contract from the moment the letter of acceptance is posted by acceptor. But the acceptor will be bound by his acceptance only when the letter of acceptance has reached the proposer. Thus, loss of letter in post, late delivery or miscarriage, etc., will not affect the validity of the contract. But it is necessary that the letter of acceptance should be correctly addressed, sufficiently stamped, and posted.
3) Communication of a Revocation:
Revocation means "taking back" or "withdrawal". It may be a revocation of offer or acceptance. The communication of a revocation is complete:
- As against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it.
- As against the person to whom it is made, when it comes to his knowledge.
For example, A proposes, by a letter, to sell a house to B at a certain price. The letter is posted on 15 May. It reaches B on 19th May. A revokes his offer by telegram on 18th May. The telegram reaches B on 20 May. The revocation is complete as against A when the telegram is dispatched, i.e., on 18th May. It is complete as against B when B receives it, i.e., on 20 May.
Time for Revocation of Offer & Acceptance [Section 5]
Time for revocation of offer and acceptance are as follows:
1) Time for Revocation of Proposal:
A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer but not afterwards. The letter revoking the offer must be received by the acceptor before he posts the letter of acceptance. Once the letter of acceptance is dispatched, the offer cannot be revoked. It is immaterial that the proposer has not yet received the letter of acceptance. The moment the letter of acceptance is posted, it is binding on the proposer.
For example, the letter of acceptance is posted by B on 14. A can revoke his proposal at any time before 14 or before the posting of letter of acceptance.
2) Time for Revocation of Acceptance:
An acceptance may be revoked at any time before Its communication is complete as against the acceptor, but not afterwards. Once the letter of acceptance reaches the proposer, the acceptance cannot be revoked. Thus, unacceptance can be revoked before the letter of acceptance reaches the proposer.
For example, the letter of acceptance posted by B on 14th reaches A on 16th then B may revoke his acceptance at any time before the letter of acceptance reaches A. i.e., 16th but not afterwards. The position relating to revocation of proposal and acceptance has, been described by Anson in the following words:
"Acceptance is to offer what a lighted match is to a train of gunpowder. It produces something which cannot be recalled or undone."