Cross Offer and Counter Offer | Law Optional Notes for UPSC PDF Download

Understanding Cross Offers in Contract Law

In contract law, a cross-offer occurs when two parties make offers to each other simultaneously or nearly simultaneously, and neither offer is accepted. This situation can lead to uncertainty regarding the formation of a contract.

Key Concepts:

• Definition of Offer: Section 2(a) of the Indian Contract Act, 1872 defines an offer as a proposal made by one party to another with the intention of obtaining the other party's assent.

Explanation:

• Cross Offer Scenario: In a cross-offer situation, both parties present offers to each other, but neither party accepts the offer made by the other.
• Contract Formation: As a result, no contract is formed because acceptance is a crucial element in contract formation.

Example:

• Scenario: Company A and Company B simultaneously send offers to sell goods to each other at different prices.
• Outcome: If neither company accepts the other's offer, a cross-offer situation arises, and no contract is established.

Understanding cross offers is essential in contract law to grasp the nuances of offer and acceptance, which are fundamental in forming legally binding agreements.

Tinn v Hoffman

• Case Background:
  • Tinn v Hoffman (1873) LR 29 Ch D 271 involved a negotiation between Tinn and Hoffman regarding the sale of iron goods.
• Offer and Counteroffer:
  • Tinn made an offer to sell the goods to Hoffman at a specific price.
  • Hoffman responded with a counteroffer, proposing to purchase the same goods at a lower price.
• Non-Acceptance of Offers:
  • Neither party accepted the other's offer - Tinn did not accept Hoffman's counteroffer, and Hoffman did not accept Tinn's initial offer.
• Court Ruling:
  • The court determined that a contract did not exist because there was no mutual acceptance of the offers made by both parties.

Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas and Co.

• Case Overview: The case of Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas and Co. (1966) AIR 1966 SC 543 involved a situation where the plaintiff and the defendant engaged in negotiations regarding the sale of certain goods.
• Offer and Counteroffer: The plaintiff made an offer to sell goods to the defendant, while the defendant responded with a counteroffer proposing to purchase the same goods but at a lower price.
• Non-Acceptance of Offers: Neither party accepted the other's offer in this case. The plaintiff did not accept the defendant's counteroffer, and the defendant did not accept the plaintiff's initial offer.
• Court Ruling: The court concluded that no contract was formed between the parties due to the presence of cross offers. Since both offers were not accepted, there was no meeting of the minds to create a binding agreement.

Counter Offers

• A counteroffer is a response made to an initial offer by the other party, representing a rejection of the original offer and a presentation of new terms.
• When Party B responds to Party A's offer with different terms, it constitutes a counteroffer, indicating a willingness to engage in a contract under these new conditions.
• For example, if Party A offers to sell a car for $10,000, and Party B counteroffers to purchase it for $9,000, this action supersedes the original offer, creating a new proposal.
• It's crucial to understand that a counteroffer effectively ends the initial offer and forms a fresh offer. The original offer cannot be accepted once a counteroffer is made unless the initial offeror agrees to the new terms.
• Legal precedents like Hyde v. Wrench (1840) and Stevenson, Jaques & Co. v. McLean (1880) have played significant roles in defining the legal aspects related to counter offers within contract law.

Hyde v Wrench (1840) 3 Beav 334

• Background: Wrench offered to sell his farm to Hyde for £1,000. Hyde then proposed to buy the farm for £950, which Wrench declined.
• Counteroffer Effect: Hyde's counteroffer of £950 effectively ended Wrench's original offer of £1,000.
• Legal Consequence: The court ruled that there was no valid contract between Hyde and Wrench because the counteroffer terminated the original offer.
• Acceptance Issue: When Hyde tried to accept the initial offer of £1,000 after his counteroffer was rejected, Wrench refused to sell the farm.
• Outcome: The attempted acceptance of the original offer was deemed invalid by the court due to the prior termination caused by Hyde's counteroffer.

Cross Offer v. Counter Offer

Cross-Offer

• In contract law, a cross-offer is when two parties unknowingly make identical offers to each other simultaneously.
• No acceptance occurs in a cross-offer situation because both parties are making offers at the same time.
• Acceptance requires a clear agreement to the terms of the offer, which is absent in a cross-offer scenario.
• A cross-offer does not lead to a valid contract as there is no acceptance by either party.
• Example: If Party A offers to sell a car to Party B for $10,000, and Party B offers to buy the same car from Party A for $10,000 at the same time, it results in a cross-offer.

Counter-Offer

• Contrary to a cross-offer, a counter-offer is a response to an initial offer that changes the terms of the original offer.
• It involves the rejection of the initial offer and the simultaneous presentation of a new offer.
• The new offer made in response to the initial offer forms the basis of any potential agreement.
• A counter-offer terminates the original offer, and the offeree cannot subsequently accept the initial offer.
• Example: If Party A offers to sell a car to Party B for $10,000, and Party B responds by offering to buy the car for $9,000, it constitutes a counter-offer.

Differences

• In a cross-offer, there is no acceptance, while in a counter-offer, there is a rejection of the initial offer.
• A cross-offer does not terminate either offer, allowing both parties to accept or reject, whereas a counter-offer terminates the original offer.
• Landmark Cases: Lalman Shukla v. Gauri Dutt (1913) and Bengal Coal Co v Homee Wadia & Co (1909) dealt with cross-offer situations in India.
• Unintentional Cross-Offer: Occurs when parties inadvertently make identical offers to each other, leading to confusion and the need for clarification.