All you need to know about offer & proposal in Law of Contracts | Legal Reasoning for CLAT PDF Download

Meaning of Offer or Proposal

A proposal is defined 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 The offeror or proposer expresses his willingness “to do” or “not to do” (i.e., abstain from doing) something with a view to obtain acceptance of the other party to such act or abstinence. Thus, there may be “positive” or “negative” acts which the proposer is willing to do.

Examples-

• A offers to sell his book to B. A is making an offer to do something, i.e., to sell his book. It is a positive act on the part of the proposer.
• A offers not to file a suit against B, if the latter pays A the amount of Rs. 200 outstanding. Here the act of A is a negative one, i.e., he is offering to abstain from filing a suit.

How An Offer Is Made?

An offer can be made by (a) any act or (b) omission of the party proposing by which he intends to communicate such proposal or which has the effect of communicating it to the other (Section 3). An offer can be made by an act in the following ways:

• 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.
• by conduct. The offer may be made by positive acts or signs so that the person acting or making sign means to say or convey. However silence of a party can in no case amount to offer by conduct.

An offer can also be made by a party by omission (to do something). 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.

Examples-

• 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.
• 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.
• A owns a motor boat for taking people from Bombay to Goa. The boat is in the waters at the Gateway of India. This is an offer by conduct to take passengers from Bombay 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.
• 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.

Specific and General Offers

An offer can be made either:

• to a definite person or a group of persons, or
• to the public at large.

The first mode of making offer is known as specific offer and the second is known as a general offer. In case of the specific offer, it may be accepted by that person or group of persons to whom the same has been made. The general offer may be accepted by any one by complying with the terms of the offer.
This is an excellent example of a general offer and is explained below.

Examples-

• A offers to sell his house to B at a certain price. The offer has been made to a definite person, i.e., B. It is only B who can accept it.
• The patent-medicine company advertised that it would give a reward of £100 to anyone who contracted influenza after using the smoke balls of the company for a certain period according to the printed directions. Mrs. Carlill purchased the advertised smoke ball and contracted influenza in spite of using the smoke ball according to the printed instructions. She claimed the reward of £100. The claim was resisted by the company on the ground that offer was not made to her and that in any case she had not communicated her acceptance of the offer. She filed a suit for the recovery of the reward.

Held: She could recover the reward as she had accepted the offer by complying with the terms of the offer.

The general offer creates for the offeror liability in favour of any person who happens to fulfil the conditions of the offer. It is not at all necessary for the offeree to be known to the offeror at the time when the offer is made. He may be a stranger, but by complying with the conditions of the offer, he is deemed to have accepted the offer.

Essential requirements of a valid offer

An offer must have certain essentials in order to constitute it a valid offer. These are:

• The offer must be made with a view to obtain acceptance [Section 2(a)].
• The offer must be made with the intention of creating legal relations
• The terms of offer must be definite, unambiguous and certain or capable of being made certain (Section 29). The terms of the offer must not be loose, vague or ambiguous.

Examples-

• A offers to sell to B “a hundred 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.
• A who is a dealer in coconut oil only, offers to sell to B “one hundred quintals of oil”. The nature of A’s trade affords an indication of the meaning of the words, and there is a valid offer.

An offer must be distinguished from (a) a mere declaration of intention or (b) an invitation to offer or to treat.

Offer vis-a-vis declaration of intention to offer

A person may make a statement without any intention of creating a binding obligation.
It may amount to a mere declaration of intention and not to a proposal.

Examples-

• An auctioneer, N advertised that a sale of office furniture would take place at a particular place. H travelled down about 100 Km to attend the sale but found the furniture was withdrawn from the sale. H sued the auctioneer for his loss of time and expenses.

Held: N was not liable.

• A father wrote to his would-be son-in-law that his daughter would have a share of what he would leave at the time of his death. At the time of death, the son-in-law staked his claim in the property left by the deceased.

Held: The son-in-law’s claim must fail as there was no offer from his father-in-law creating a binding obligation. It was just a declaration of intention and nothing more.

Offer vis-a-vis invitation to offer

An offer must be distinguished from invitation to offer. A prospectus issued by a college for admission to various courses is not an offer. It is only an invitation to offer. A prospective student by filling up an application form attached to the prospectus is making the offer. An auctioneer, at the time of auction, invites offers from the would-be-bidders. He is not making a proposal. A display of goods with a price on them in a shop window is construed an invitation to offer and not an offer to sell.

Example-

• In a departmental store, there is a self-service. The customers picking up articles and take them to the cashier’s desk to pay. The customers action in picking up particular goods is an offer to buy. As soon as the cashier accepts the payment a contract is entered into.
• Likewise, prospectus issued by a company for subscription of its shares by the members of the public, the price lists, catalogues and quotations are mere invitations to offer.
• On the basis of the above, we may say that an offer is the final expression of willingness by the offeror to be bound by his offer should the other party choose to accept it. Where a party, without expressing his final willingness, proposes certain terms on which he is willing to negotiate, he does not make an offer, he only invites the other party to make an offer on those terms. This is perhaps the basic distinction between an offer and an invitation to offer.

Example-
The plaintiffs (Harvey) telegraphed to the defendants (Facie), writing:

• “Will you sell us Bumper Hall Pen?* Telegraph lowest cash price.” The defendants replied also last telegram stating: “We agree to buy Bumper Hall Pen for £900 asked by you”. The defendants refused to sell the plot of land (Bumper Hall Pen) at that price. The plaintiffs contention that by quoting their minimum price in response to the inquiry, the defendants had made an offer to sell at that price, was turned down by the Judicial Committee. 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. 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.

The offer must be communicated to the offeree. An offer must be communicated to the offeree before it can be accepted. This is true of specific as well as general offer.
G sent S, his servant, to trace his missing nephew. Subsequently, G announced a reward for information relating to the boy. S, traced the boy in ignorance of the announcement regarding reward and informed G. Later, when S came to know of the reward, he claimed it. Held, he was not entitled to the reward on the ground that he could not accept the offer unless he had knowledge of it [Lalman Shukla v. Gauri Dutt, II, A.L.J. 489].
The offer must not contain a term the non-compliance of which may be assumed to amount to acceptance. Thus, the offeror cannot say that if the offeree does not accept the offer within two days, the offer would be deemed to have been accepted.

Example- 

• A tells B ‘I offer to sell my dog to you for Rs. 45. If you do not send in your reply, I shall assume that you have accepted my offer’. The offer is not a valid one.

A tender is an offer as it is in response to an invitation to offer. Tenders commonly arise where, for example, a hospital invites offers to supply eatables or medicines. The persons filling up the tenders are giving offers. However, a tender may be either:
(a) specific or definite; where the offer is to supply a definite quantity of goods, or
(b) standing; where the offer is to supply goods periodically or in accordance with the requirements of the offeree.
In the case of a definite tender, the suppliers submit their offers for the supply of specified goods and services. The offeree may accept any tender (generally the lowest one). This will result in a contract.

Example

• A invites tenders for the supply of 10 quintals of sugar. B, C, and D submit their tenders. B’s tender is accepted. The contract is formed immediately the tender is accepted.
• In the case of standing offers, the offeror gives an open offer whereby he offers to supply goods or services as required by the offeree. A separate acceptance is made each time an order is placed. Thus, there are as many contracts as are the acts of acceptance.

Example-

• The G.N. Railway Co. invited tenders for the supply of stores. W made a tender and the terms of the tender were as follows: “To supply the company for 12 months with such quantities of specified articles as the company may order from time to time. The company accepted the tender and placed the orders. W executed the orders as placed from time to time but later refused to execute a particular order.

Held: W was bound to supply goods within the terms of the tender.

• The Supreme Court of India in this regard has observed: As soon as an order was placed a contract arose and until then there was no contract. Also each separate order and acceptance constituted a different and distinct contract.
• It is to be noted that if the offeree gives no order or fails to order the full quantity of goods set out in a tender there is no breach of contract. Revocation or Withdrawal of a tender. A tenderer can withdraw his tender before its final acceptance by a work or supply order. This right of withdrawal shall not be affected even if there is a clause in the tender restricting his right to withdraw. A tender will, however, be irrevocable where the tenderer has, on some consideration, promised not to withdraw it or where there is a statutory prohibition against withdrawal.

Special terms in a contract

The special terms, forming part of the offer, must be duly brought to the notice of the offeree at the time the offer is made. If it is not done, then there is no valid offer and if offer is accepted, and the contract is formed, the offeree is not bound by the special terms which were not brought to his notice. The terms may be brought to his notice either:
(a) by drawing his attention to them specifically, or
(b) by inferring that a man of ordinary prudence could find them by exercising ordinary intelligence.

(a) the examples of the first case are where certain conditions are written on the back of a ticket for a journey or deposit of luggage in a cloak room and the words. “For conditions see back” are printed on the face of it. In such a case, the person buying the ticket is bound by whatever conditions are written on the back of the ticket whether he has read them or not.

Examples- 

• P, a passenger deposited a bag in the cloakroom at a Railway Station. The acknowledgement receipt given to him bore, on the face of it, the words “See back”.
  • One of the conditions printed on the back limited the liability of the Railways for any package to £10. The bag was lost, and P claimed £24. 10s, its value, pleading that he had not read the conditions on the back of the receipt.

Held: P was bound by the conditions printed on the back as the company gave reasonable notice on the face of the receipt as to the conditions at the back of the document.

• A lady, L, the owner of a cafe, agreed to purchase a machine and signed the agreement without reading its terms. There was an exemption clause excluding liability of the seller under certain circumstances. The machine proved faulty and she purported to terminate the contract.

Held: That she could not do so, as the exemption clause protected the seller from the liability.

• T purchased a railway ticket, on the face of which the words: “For conditions see back” were written. One of the conditions excluded liability for injury, however caused. T was illiterate and could not read. She was injured and sued for damages.

Held: That the railway company had properly communicated the conditions to her who had constructive notice of the conditions whether she read them or not. The company was not bound to pay any damages.

(b) The same rule holds good even where the conditions forming part of the offer are printed in a language not understood by the acceptor provided his attention has been drawn to them in a reasonable manner. In such a situation, it is his duty to ask for the translation, of the conditions and if he does not do so, he will be presumed to have a constructive notice of the terms of the conditions.
If conditions limiting or defining the rights of the acceptor are not brought to his notice, then they will not become part of the offer and he is not bound by them.

Example-

• A passenger was travelling with luggage from Dublin to Whitehaven on a ticket, on the back of which there was a term which exempted the shipping company from liability for the loss of luggage. He never looked at the back of the ticket and there was nothing on the face of it to draw his attention to the terms on its back. He lost his luggage and sued for damages.

Held : He was entitled to damages as he was not bound by something which was not communicated to him.

• Also, if the conditions are contained in a document which is delivered after the contract is complete, then the offeree is not bound by them. Such a document is considered a noncontractual document as it is not supposed to contain the conditions of the contract. For instance, if a tourist driving into Mussoorie, receives a ticket upon paying toll-tax, he might reasonably assume that the object of the ticket was that by producing it he might be free from paying toll at some other toll-tax barrier, and might put in his pocket without reading the same. The ticket is just a receipt or a voucher.

Example-

• C hired a chair from the Municipal Council in order to sit on the beach. He paid the rent and received a ticket from an attendant. On the back of the ticket, there was a clause exempting the Council “for any accident or damage arising from hire of chairs.” C sustained personal injuries as the chair broke down while he was sitting therein. He sued for damages.

Held : That the Council was liable.

• From the illustrations given it may be concluded that whether the offeree will be bound by the special conditions or not will depend on whether or not he had or could have had notice by exercising ordinary diligence.

What are Cross Offers?

Where two parties make identical offers to each other, in ignorance of each other’s offer, the offers are known as cross-offers and neither of the two can be called an acceptance of the other and, therefore, there is no contract.

Example-

• H wrote to T offering to sell him 800 tons of iron at 69s. per ton. On the same day T wrote to H offering to buy 800 tons at 69s. Their letters crossed in the post. T contended that there was a good contract.

Held: that there was no contract.