Proposals or Offers in Contract Law Explained
The formation of a contract is initiated when a proposal or offer is made by one party to the other. Once the proposal or offer made is accepted by the other party, both parties are said to have entered into an agreement. Let us understand the meaning of a proposal in detail and the essentials of an offer.
Section 2(a) of the Indian Contract Act 1872, defines Proposal as “when one person will signify to another person his willingness to do or not do something (abstain) with a view to obtain the assent of the other person to such an act or abstinence, he is said to make a proposal or an offer.”
A proposal is the same as an offer.
Essentials of a Valid Proposal and Offer
Parties Involved
There must be a minimum of two people for a proposal to be made. The person(s) making the offer is called the ‘offerer’ or the ‘promisor’ and the person(s) to whom the offer is made is called the ‘offeree’ or the ‘acceptor’.
Communication of the Offer
The offer proposal must be explicitly communicated to the offeree. Mere intentions of making an offer or the desire to do something is not sufficient. The offeree cannot accept the offer unless it is communicated to him. A person doing or abstaining from doing something without any knowledge of the offer does not constitute acceptance.
Case Law: Lalman Shukla vs Gauri Dutt
In this case, when Gauri Dutt’s nephew went missing, he sent his servant Lalman Shukla to look for the nephew. Gauri Dutt announced a reward for anyone who finds his nephew but Lalman Shukla was not aware of this offer. When Lalman Shukla returned with the nephew he brought the case in the court of law for claiming the reward. The court decided that when the servant went looking for the nephew and found him, he was not aware of the offer of the reward. Since the offer had not been communicated to him he was not entitled to claim the reward.
To Do or Abstain from Doing
The offeror must communicate to the offeree his willingness to do or abstain from doing an act that constitutes the offer.
Create Legal Relations
An offer and proposal must create legal relations between the parties. A social obligation like an invitation for a party is not a valid offer.
Obtaining Assent
The proposal or offer must be made with the intention of obtaining the assent of the offeree to the offer.
Example - A tells B that he will marry her after a year. This will not be considered as an offer as A is not seeking acceptance from B. He is simply informing B about his wish or desire and this will not be an offer until he asks B for her answer. If A asks B to marry her then it will be considered an offer.
The Offer Must Not Be Vague
The offer made must be clear, definite, and unambiguous. It must clearly convey to the offeree what is being expected from him through the offer. There should not be any confusion about the terms of the offer made.
Example- A makes an offer to B to sell 100 kgs of vegetables for a sum of 5000 rupees. This offer is not clear as A has not mentioned the type of vegetables he wants to sell to B.
An Offer and Proposal Can Be Conditional
While an acceptance cannot be conditional, an offer may contain certain conditions. It is up to the offeree to accept the offer with those conditions. If the offeree adds some of his conditions to the offer, it is not called an acceptance of the offer but a counteroffer.
The Burden of Acceptance Cannot Be on the Offeree
The offer must not contain a negative condition that if the acceptance is not communicated within a specified time, the offer will be considered accepted.
Offer Proposal Can Be Explicit or Implied
The offer can be explicitly communicated either through specific words, in a written format, verbally, or it can be implied through the conduct of the offeror.
FAQs on Proposals or Offers in Contract Law Explained
1. What is a 'proposal' or 'offer' according to the Indian Contract Act, 1872?
According to Section 2(a) of the Indian Contract Act, 1872, a proposal (or offer) is when one person signifies to another their willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence. It is the starting point for any legally binding agreement.
2. What are the essential elements that make a proposal valid in contract law?
For a proposal to be considered valid, it must meet several key conditions. The most important elements are:
Intention to Create Legal Relations: The offer must be made with the serious intention of creating a legal relationship, not in a social or domestic context.
Clear and Definite Terms: The terms of the offer must be certain, unambiguous, and not vague. For example, offering to sell 'some oil' is too vague.
Communication to the Offeree: The offer must be properly communicated to the person it is intended for. A person cannot accept an offer they are not aware of.
Express or Implied: An offer can be made in words (express offer) or be inferred from the conduct of the parties or the circumstances of the case (implied offer).
3. Can you explain the main types of offers with examples?
Offers can be classified based on how they are made. The primary types are:
General Offer: Made to the public at large. Anyone who fulfils the terms of the offer can accept it. Example: An advertisement promising a reward for a lost pet.
Specific Offer: Made to a specific person or a group of persons. Only that specific person or group can accept it. Example: A sends an email to B offering to sell his car for ₹2,00,000.
Cross Offer: When two parties make identical offers to each other in ignorance of each other's offer. This does not result in a contract.
Counter Offer: When the offeree accepts the offer but with modifications to the terms. This rejects the original offer and creates a new one.
4. How is an 'invitation to offer' different from a legal 'offer'?
The key difference lies in the intention of the person making the statement. An offer is a final expression of willingness to be bound by its terms upon acceptance. In contrast, an invitation to offer is a preliminary step to invite others to make a proposal. The person making the invitation is not bound to accept any offers they receive. Common examples of an invitation to offer include price tags on goods in a shop, restaurant menus, and advertisements for auctions.
5. Under what circumstances can a proposal or offer be revoked or come to an end?
A proposal does not remain open forever. It can lapse or be revoked in several ways, including:
By communication of a notice of revocation by the proposer before acceptance is complete.
By the lapse of time prescribed in the proposal for its acceptance, or, if no time is prescribed, by the lapse of a reasonable time.
By the failure of the acceptor to fulfil a condition precedent to acceptance.
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.
By a counter-offer from the offeree.
6. Is there any difference between the terms 'proposal' and 'offer' in the Indian Contract Act, 1872?
No, within the legal framework of the Indian Contract Act, 1872, the terms 'proposal' and 'offer' are used interchangeably and carry the same legal meaning. Section 2(a) of the Act officially defines the term 'proposal,' which is what is commonly understood as an 'offer' in general and in English contract law. For students of Indian commerce and law, these two terms can be considered synonymous.
7. How does a counter-offer affect the original proposal made by a party?
A counter-offer fundamentally changes the negotiation. When an offeree responds to an offer with modified terms, it legally acts as a rejection of the original proposal. This terminates the original offer, meaning it can no longer be accepted. The counter-offer then becomes a fresh proposal, which the original proposer is free to either accept or reject. For example, if A offers to sell a book for ₹100 and B replies, "I will buy it for ₹80," B has made a counter-offer, and A's original offer is now void.
