Offer/Proposal under Indian Contract Act, 1872: Definition, Communication, Revocation & Case Laws

 

Every contract starts with an offer or proposal. A proposal must be made by one party and accepted by the other in order for a contract to be enforceable. Proposals, their communication, acceptance, and revocation are governed by the Indian Contract Act of 1872. Understanding Sections 2(a) and Section 3 through 8 is very crucial for law students since they define what constitutes a proposal, when it is conveyed, how it can be rescinded, and how acceptance occurs. These clauses are formally placed under the Act’s “Communication, Acceptance and Revocation of Proposals” chapter.

The definition is an offer, its fundamental components, communication, revocation, general and specific offers, significant examples, and leading case laws are all covered in this article. 

TABLE OF CONTENT 

• WHAT IS AN OFFER OR PROPOSAL?
• ESSENTIAL ELEMENTS OF A VALID OFFER
• COMMUNICATION OF OFFER
• TYPES OF OFFERS
• COMMUNICATION OF ACCEPTANCE OF AN OFFER
• ACCEPTANCE BY CONDUCT – section 8
• REVOCATION OF OFFER
• MODES OF REVOCATION under section 6
• OFFER VS INVITATION TO OFFER
• IMPORTANT CASE LAWS ON OFFER
• CONCLUSION

WHAT IS AN OFFER OR PROPOSAL?

According to Section 2(a) of the Indian Contract Act, 1872, a proposal is made when one person indicates to another that he is willing to do something or refrain from doing something in order to get the other person’s consent. To put it simply, an offer is a person’s readiness to engage into a legal partnership with another on certain terms, with the hope that the other person will accept it. The offeror or proposer is the person who makes the offer, while the offeree is the person to whom the offer is made.

ESSENTIAL ELEMENTS OF A VALID OFFER

Certain conditions must be met for an offer to have legal significance.  

1-The offer must show an intention to create legal relations –

 The purpose of the offer must be to establish a legal obligation. For instance, if A tells his friend, “I will take you out for dinner tomorrow,” this is typically considered a social agreement rather than a contractual commitment. However, because it refers to a business transaction, A’s statement, “I will sell you my phone for 20,000,” might be considered an offer.

2- The offer must be certain and definite –

An offer’s conditions should be properly explicit. For instance –

Acceptable: “I’ll give you my motorcycle for 70,000.”

Uncertain: “I’ll give you a fair price for my motorcycle.”

Unless the surrounding conditions offer an objective basis for calculating the price, the second statement can be excessively ambiguous.

3- The offer must be communicated -

A person who is not aware of an offer cannot accept it. Lalman Shukla v. Gauri Dutt is a well-known case that established this element. In this instance, a servant was dispatched to look for the missing nephew of his master. When the servant discovered the nephew, he was not aware of the reward that had been announced. The court decided that as he has carried out the deed without being aware of the offer, he was not entitled to the award.

Principle: Before accepting an offer, one must be aware of it. A person cannot, therefore, accept an offer that he was unaware of.

4- The offer must be made with a view to obtaining assent-

An offer does not always follow from a simple declaration of intent. For instance- “Next month, I plan to sell my car.” This just conveys an intention. It doesn’t always encourage acceptance. Conversely: “I’d like to sell my car for 5 lakhs.” This shows that you intend to get the other person’s consent.

5- Under Section 9, promises may be expressed or implied -

Promises may be made explicitly or implicitly. An express offer might be made verbally or in writing. An implicit offer is deducted from actions or situations. For instance – when a bus is run seeking passengers, the operator’s actions may be interpreted as an implicit offer to transport people in accordance with the relevant terms and fare.

COMMUNICATION OF OFFER

Section 3 and 4 include the majority of the communication guidelines.

Section 3: Communication of proposals – According to Section 3, a proposal, acceptance, or revocation may be communicated by an act or omission that is meant to communicate it or that has the effect of communicating it. Thus, communication can occur through words, writing, conduct, electronic communication, other acts having the effect of communicating the proposal.

Section 4: When is an offer fully communicated? Section 4 states that a proposal is considered fully communicated when the recipient is aware of it. For instance – A writes to B with an offer. When B receives the letter and learns about it, the offer is communicated. As a result, just sending the offer does not guaranty that it has been shared.

TYPES OF OFFERS

Offers fall into a variety of areas. General offers and specific offers are two particularly significant categories.

1-    Specific offer -

A unique offer is given to a specific individual or group of individuals. Generally speaking, only the person or people to whom the offer is made may accept it. For instance, A informs B: “I’ll sell you my car for 6 lakhs.” B is the target of this specific offer. Since the offer was made especially to B, C cannot normally accept it if C finds out about it and declares, “I accept your offer.”

Case law: Boulton vs Jones – In Boulton vs Jones, an offer was made to one person, and after acquiring the relevant firm, another person tried to accept it. The case serves as an example of the idea that a specific offer is meant for the recipient.

2-    General offer -

An offer presented to the general is known as a general offer. Anybody who meets the requirements outlined in the offer may accept it. For instance, A states that: “Anyone who finds and returns my lost dog will receive a reward of 10,000.” Since the general population is the target audience, this is a general offer. The award is available to anyone who is aware of the offer and fulfils its requirements.

Carlill vs Carbolic Smoke Ball co. case – Carlill vs Carbolic Smoke Ball Co. (1893) is one of the most well-known cases involving general offers. In its advertisement, the business promised to pay £100 to anyone who used its smoke ball as directed but nevertheless got the flu. In order to prove its genuineness, the corporation said that it had deposited £1,000 with a bank. Mrs. Carlill claimed the incentive after getting the illness after using the smoke ball as instructed. According to the court, the advertisement was a generic offer made to the public, which Mrs. Carlill accepted by fulfilling its requirements. The case demonstrated that an offer may be given to the general public in a suitable situation, and acceptance may take place by fulfilling its requirements.

COMMUNICATION OF ACCEPTANCE OF AN OFFER

A contract is not created by an offer alone. The law must embrace it. According to Section 2(b), a proposition is deemed accepted when the person to whom it is made indicates his assent. Additionally, Section 7 mandates that acceptance be unqualified and absolute. For instance – For Rs. 20,000, A offers to sell B his phone. B states: “Your offer of Rs. 20,000 is accepted.” This is a complete acceptance. However, if B states: I’ll pay Rs. 17,000 for it.” This is not a sign of approval. The offer is a counter offer.

ACCEPTANCE BY CONDUCT – section 8

According to Section 8, fulfilling the terms of a proposal or accepting the consideration included with it may be considered acceptance. In situations involving generic offers, this clause is very crucial. For instance – A declares: “Anyone who returns my lost dog will receive Rs. 5000.” B locates and returns my lost dog after learning about the offer. If B fulfils the requirement, the offer may be considered accepted. Carlill vs Carbolic Smoke Ball Co. is another example of this idea.

REVOCATION OF OFFER

An offer doesn’t stay open forever. Section 5 and 6 of the Indian Contract Act provide revocation guidelines. Section 5 states revocation prior to acceptance. A proposal may be withdrawn under section 5 at any point prior to the proposer being fully informed of its acceptance, but not after. For instance – A sends B a letter offering to sell his house. B announces his approval. According to the statutory postal rule outlined in Section 5, once B posts the acceptance, A’s ability to withdraw the proposal expires because, at that point, notification of acceptance is complete against A.

MODES OF REVOCATION under section 6

Section 6 states that an offer may be withdrawn in the following ways:

1-    By sending out a notice of revocation – If the offer is retracted, the offeror may notify the offeree. For instance – A proposes to sell B his automobile for Rs. 5 lakhs. Before B agrees, A informs B: “I’m withdrawing my offer,” The offer has been withdrawn. However, simply choosing to withdraw the offer in secret is insufficient; the offeree must be informed of the revocation.

2-    By lapse of prescribed or reasonable time – An offer may be expired when the time given for acceptance ends. If no time is given, offer may expire after a reasonable period has passed. Example – A offers to sell flowers to B and asks B to accept immediately. If B tries to accept after several days, the offer may have expired depending on the situation.

3-    By failure to fulfil the condition precedent – An offer may be revoked if the person accepting fails to meet a condition that must be fulfilled before accepting. Example – A offers to sell certain goods to B on a condition that B pays Rs. 10,000 before accepting. If B does not meet this condition, the offer may expire.

4-    By death or insanity of proposer – Under section 6, an offer is revoked if the proposer dies or becomes insane, and this fact is known to the person receiving the offer before acceptance occurs. Therefore, mere death or insanity is not enough under this rule, the fact must be known to the offeree before acceptance

OFFER VS INVITATION TO OFFER

In contract law, it is important to understand the difference between an offer and an invitation to offer. An invitation to offer is simply a way of asking people to make offers. Example to invitation to offer – goods displayed in a shop, price list, catalogues, most advertisements, auction notices. For instance – If a shirt is displayed in a shop shelf with a price tag, it is usually an invitation for customers to make an offer, not an offer itself. This principle was recognised in the Pharmaceutical Society of Great Britain vs Boots Cash Chemist Ltd.

IMPORTANT CASE LAWS ON OFFER

1-    Lalman Shukla vs Gauri Datt (1913)

FACTS – Gauri Datt’s nephew went missing. He sent his servant, Lalman Shukla, to search for the boy and gave him money for travel. After Lalman began searching for the boy, Gauri Datt put up posters offering a reward of Rs. 501 for anyone who found his nephew. Lalman found the boy and returned him, but he did not know about the reward when he did so. Later, after learning about the reward, he asked Gauri Datt for the money.

ISSUE – Was Lalman Shukla entitled to the reward even though he was unaware of the offer when he found the missing boy?

JUDGEMENT – The Allahabad High Court ruled that Lalman was not entitled to reward. The court explained that Lalman did not know about the reward when he searched for and found the boy. Therefore, his act could not be seen as acceptance of the offer. He was acting on his employer’s instruction, not in response to the reward.  

2-    Boulton vs Jones (1857)

FACTS – A company held by man named Brocklehurst was taken over by Boulton. Jones had a great commercial relationship with Brocklehurst and had been one of his customers. Jones thought he was dealing with Brocklehurst when he sent an order to the shop. But Boulton had already taken control of the company when the order arrived. Jones received the goods from Boulton in accordance with the order. Jones later declined to pay Boulton, claiming that he had no intention of signing a contract with Boulton.   

ISSUE – If Jones had made the offer thinking he was dealing with Brocklehurst, could Boulton still demand payment from Jones?

JUDGEMENT – According to the court, Bouton was unable to get the money back from Jones. Boulton was not the target of Jones’s offer, Brocklehurst was. Boulton was not the intended recipient of the offer, so he was unable to accept it and enter into a contract with Jones.  

3-    Harvey vs Facey (1893)

FACTS – In a telegram, Harvey asked Facey: Will you sell Bumper Hall Pen to us? The lowest cash price is telegraphed. Facey answered: “Bumper Hall Pen’s lowest price is £900.” After that, Harvey sent another telegram: “We agree to pay £900 for the Bumper Hall Pen.” Facey declined to sell this property and failed to complete the transaction.

ISSUE – Whether Harvey could accept Facey’s claim that the lowest price was £900.

JUDGEMENT – According to the Privy Council, there was no legally enforceable agreement. Facey only stated the price at which he was willing to sell when he said that £900 was the lowest price. The offer to sell the home for £900 was not made. Because Facey had not made an offer, Harvey’s subsequent reply stating “We agree to buy” could not be interpreted as an acceptance of an offer.  

4-    Pharmaceutical Society of Great Britain vs Boots Cash Chemist Ltd. (1953)

FACTS – A self-service pharmacy was run by Boots Cash Chemist. Customers may browse the store, choose medications from the shelves, and then bring them to the register. The Pharmaceutical Society of Great Britain contended that some medication’s placement on the shelves constituted an offer to buy. This was significant since certain medications could only be lawfully sold under a registered pharmacist’s supervision. In essence, the question was whether the customer’s purchase of the medication off the shelf or the cashier’s acceptance of it at the counter constituted the contract of sale.

ISSUE – Whether an offer for sale was made when products were displayed were displayed on a self-service store’s shelves and accepted when the customer picked them up.

JUDGEMENT – The Court of Appeal determined that the merchandise displayed on the shelves constituted an invitation to offer rather than an actual offer. The offer to buy was made by the customer when they brought the items to the cashier. That offer could subsequently be accepted or rejected by the cashier or shopkeeper. Therefore, rather than when the customer picked up the items from the shelf, the contract was made at the cashier’s counter.

CONCLUSION

To comprehend how a contract is formed under the Indian Contract Act of 1872, one must grasp the idea of an offer or proposal. The fundamental framework of offer and acceptance is established by these provisions, which range from the definition of a proposal under Section 2(a) to its notification and withdrawal under Section 3 to 6. Cases like Lalman Shukla vs Gauri Datt, Boulton vs Jones, Harvey vs Facey, and Pharmaceutical Society of Great Britain vs Boots Cash Chemists Ltd. serve as an example of key concepts pertaining to pricing statements, invitation to offer, communication of offers, and specific offers.

We hope this article helped you understand the concept of offer/proposal in simple and exam-friendly language. For more simplified notes, important case laws and legal concepts for law students, explore more articles on LawVibes.

Keep learning, keep questioning, and keep building your legal knowledge with LawVibes!

References

1. The Indian Contract Act, 1872, Act No. 9 of 1872, Ministry of Law and Justice, Government of India — particularly Sections 2(a), 2(b), 3, 4, 5, 6, 7, 8 and 9.
   India Code – The Indian Contract Act, 1872

2. Lalman Shukla v. Gauri Dutt, Civil Revision No. 10 of 1913, decided on 17 April 1913, Allahabad High Court, 1913 40 ALJ 489.
3. Boulton v. Jones, (1857) 2 H & N 564; 157 ER 232.
4. Harvey v. Facey, [1893] AC 552, Privy Council.
5. Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd., [1953] 1 QB 401; [1953] EWCA Civ 6.
   BAILII – Pharmaceutical Society v. Boots Cash Chemists

6.                  6. Carlill v. Carbolic Smoke Ball Co. (1893)

7. Pollock & Mulla, The Indian Contract and Specific Relief Acts, LexisNexis.
8. Avtar Singh, Law of Contract and Specific Relief, Eastern Book Company.
9. R.K. Bangia, Law of Contract, Allahabad Law Agency.

9. India Code, Legislative Department, Ministry of Law and Justice, Government of India — for the text of the Indian Contract Act, 1872.