What are the Rules of a Valid Offer?

PROPOSAL/OFFER 

[Section2(a)] of Indian Contract Act

 

Offer is not only one of the essential elements of a contract but it is the basic building block also. An offer is synonymous with proposal

Definition of Offer: According to Section 2(a) of Indian Contract Act, 1872, an offer or proposal is defined as “when a Person signifies to another his willingness to do, or, to abstain from doing anything, with a view to obtain the assent of that other to such act, or, abstinence, he is said to make a proposal”.

The first part of the definition explains that the offer must be signified or communicated to another person.

The second part explains that the proposals must be made with an intention to get the acceptance of the other party. 

The person who makes the proposal is called "Promisor/Offeror" and the person who accepts the proposal is called "Promisee/Offeree". If the other person accepts the proposal it becomes a valid contract.

In simple terms->  Abstain from doing=  ‘Not to do’ 

                                       Assent=Acceptance

Example: (i) Anna offers to sell her a book to Begum. Anna is making an offer to do something, i.e., to sell her a book. It is a positive act on the part of the offeror.

(ii) Amin offers not to file a suit against Bedi, if the latter pays Amin the amount of ` 10,000 outstanding. Here the act of Amin is a negative one i.e. he is offering to abstain from fi ling a suit.

This offer may be express or implied. The words may be spoken or written.    

Example. “I want to sell my house to you for Rs.50,000” is an express offer. An implied offer is not made in words. E.g. a taxi driver sitting in the taxi with the meter flag “For Hire” on, is an implied proposal by taxi driver that he intends to carry passengers in his taxi.

Essentials of a Valid Offer:

The following are the rules/essentials of a valid offer.

1. Offer must be made with an Intention to give rise to a legal relationship: A proposal must be made with an intention to legally bind each other. If there is no such intention to legally bind each other, the agreement will not result in a contract.

Example: A invites B to a dinner party, B promised but does not attend the dinner party. In this case A can not sue B for breach of contract.

 2. The Terms of offer must be Certain: The offer must be certain, clear, specific and definite. The offer must not be based on a condition, which is uncertain or incapable of performance.

Example:

3. Offer must be Communicated to the Offeree: A proposal must be communicated to the person or persons, for whom it is made. Until the proposal is communicated, promisee cannot accept it.

An acceptance of an offer, in ignorance of the offer, is not acceptance and does not confer any right on the acceptor.

Example- G (Gauri) sent his servant L (Lalman) to trace his missing nephew. He then advertised that who traced his nephew would be entitled to a certain reward.  L without knowing of this reward finds G’s lost nephew and restore him to G. In this case since L did not know of the reward, he cannot claim it from G even though he finds G’s lost nephew. He was held not entitled to reward because he did not know about the offer.

(Lalman Shukla v. Gauri Dutt case)

4. It must be made with a view to obtaining the assent of the other party: O­ffer must be made with a view to obtaining the assent of the other party addressed and not merely with a view to disclosing the intention of making an off­er.

5. The Proposal/offer may be made general or specific: Offers are made either for  a specific individual person or to a definite class of persons or to the world at large. When an offer is made to a definite person or definite class of persons it is called as a special offer. When an offer is made to the world at large it is called as a general offer and  can be accepted by any member of the general public by fulfilling the condition laid down in the offer.

The leading case on the subject is Carlill v. Carbolic Smoke Ball Co. The company offered by advertisement, a reward of $100 to anyone who contacted influenza after using their smoke ball in a specified manner. Mrs. Carlill did use the smoke ball in a specified manner but was attacked by influenza. She claimed the reward and it was held that she could recover the reward as a general offer can be accepted by anybody. Since this offer is of a continuing nature, more than one person can accept it and can even claim the reward. But if the offer of a reward is for seeking some information or seeking the restoration of missing things, then the offer can be accepted by one individual who does it first of all. The condition is that the claimant must have prior knowledge of the reward before doing that act or providing that information.

In India also, in the case of Harbhajan Lal v. Harcharan Lal (AIR 1925 All. 539, the same rule was applied. In this case, a young boy ran away from his father's home. The father issued a pamphlet offering a reward of Rs 500 to anybody who would bring the boy home. The plaintiff saw the boy at a railway station and sent a telegram to the boy's father. It was held that the handbill was an offer open to the world at large and was capable to acceptance by any person who fulfilled the conditions contained in the offer. The plaintiff substantially performed the conditions and was entitled to the reward offered.

6. Offer should not contain a term the non-compliance of which would amount to acceptance:

Thus, one cannot say that if acceptance is not communicated by a certain time the off­er would be considered as accepted.

7.  Statement of price is not an offer. For example Harvey v Facey

In the given case, the plainti­ffs through a telegram asked the defendants two questions namely,

(i) Will you sell us Bumper Hall Pen? and

(ii) Telegraph lowest cash price.

The defendants replied through telegram that the “lowest price for Bumper Hall Pen is £ 900”. The plainti­s sent another telegram stating “we agree to buy Bumper Hall Pen at £ 900”. However the defendants refused to sell the property at the price.

The plaintiff­s sued the defendants contending that they had made an off­er to sell the property at £ 900 and therefore they are bound by the off­er. However the Privy Council did not agree with the plainti­ffs on the ground that while plainti­ffs had asked two questions, the defendant replied only to the second question by quoting the price but did not answer the first question but reserved their answer with regard to their willingness to sell. Thus they made no off­er at all.

8. An offer is different from Invitation to offer/Treat:

An offer must be distinguished from an invitation to offer. Many statements which appear to be offers are not really offers but merely invitations to offers.

An invitation to treat is an indicator of a parties willingness to negotiate into a contract.  It is a technique used by a party who desire another party to make an offer and cannot be construed or the terms be accepted as if it were a valid legal offer in itself. 

Example: When a person advertises that he has 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.

Following are instances of invitation to off­er to buy or sell:

(i) An invitation by a company to the public to subscribe for its shares.

(ii) The display of goods in a store is an invitation to treat.

(iii) Advertising auction sales and

(iv) Quotation of prices sent in reply to a query regarding price.

(v) Advertisements for tenders

In these cases it is the purchaser who makes the offer and its upto the trader or dealer to accept or reject the offer.

Example: A shopkeeper displays in his shop an article with a lable marking “Price Rs.500”. In this case the person who enters his shop & demands the article is really the proposer & it is upto the shopkeeper to accept or reject the offer. The same rule is applied to Quotations, Catalogues & Price Lists.

An offer when accepted becomes an agreement on the other hand an invitations to offer when accepted becomes only an offer.

 

CLASSIFICATION OF OFF­ER

An o­ffer can be classified as general off­er, special/special  off­er, cross off­er, counter off­er, standing/open/ continuing off­er.

Express offer. It means an offer made 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 in person or over telephone.

Examples: A real estate company proposes, by a letter, to sell a flat to Rajiv at a certain price. This is an offer by an act by written words (i.e., letter). This is also known as an express offer.

 If the company proposes, over telephone, to sell the flat to Rajiv at a certain price then this is an offer by an act by oral words. This is an express offer.

 Implied offer. It is an offer made by conduct. It is made by positive acts or signs so that the person acting or making signs means to say or convey something. However, silence of a party can, in no case, amounts to offer by conduct.

Example: A company owns a fleet of motor boats for taking people from Mumbai to Goa. The boats are in the waters at the Gateway of India. This is an offer by conduct to take passengers from Mumbai to Goa. Even if the in-charge of the boat does not speak or call the passengers, the very fact that the motor boat is in the waters near Gateway of India signifies company’s willingness to do an act with a view to obtaining the assent of other(s) (i.e., would-be passengers). This is an example of an implied offer.

Specific offer and general offer. An offer can be made either to

(i) A definite person or a group of persons, or to

(ii) the public at large.

An offer made either to a definite person or a group of persons is a specific offer. The specific offer can be accepted by that person to whom it has been made. Thus, if a real estate company offers to sell a flat to Amar at a certain price, then it is only Amar who can accept it.

The offer made to the public at large is a general offer. A general may be accepted by any one by complying with the terms of the offer.( Case Law: Carlill Vs. Carbolic Smoke Ball Co. (1893))

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 binding contract in such a case because off­er made by a person cannot be construed as acceptance of the another’s o­ffer.

Example: If A makes a proposal to B to sell his car for ` 2 lacs and B, without knowing the proposal of A, makes an o­ffer to purchase the same car at ` 2 lacs from A, it is not an acceptance, as B was not aware of proposal made by A. It is only cross proposal (cross off­er). And when two persons make o­ffer to each other, it can not be treated as mutual acceptance. There is no binding contract in such a case.

Counter off­er: (Conditional acceptance or Rejection of original 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. It is also called as Conditional Acceptance.

Example: ‘A’ o­ffers to sell his plot to ‘B’ for `10 lakhs. ’B’ agrees to buy it for ` 8 lakhs. It amounts to counter o­ffer. It may result in the termination of the off­er of ’A’. Any if later on ‘B’ agrees to buy the plot for ` 10 lakhs, ’A’ may refuse.

Standing Offer: It remains open for acceptance over a period of time. (Ex-Newspaper supply/Milkman/ Tender of as and when required)