Introduction
Every human establishes contracts in his daily existence. With the growth of trade, commerce, and industry in contemporary society, man’s ability to make contracts improves. People can strike the finest bargain to contract because of the law’s conferment and protection. People are free to govern and define their relationships in whatever way they see fit. The Indian Contract Act of 1872 codifies these broad concepts in Indian law. This makes contracts more genuine and provides remedies to those whom they harm. As a result, the Indian Contract Act of 1872 is unquestionably one of India’s most important statutes.
Contracts have long played an important role in our lives. Hundreds of times a year, we engage in a contract, whether consciously or unconsciously. We enter into an arrangement with the store even when we buy confectionery. Even though contract law evolves throughout time, contract jurisprudence remains consistent. We all understand what a contract is, yet new scenarios happen every day, prompting the question of whether this particular agreement should be considered a contract or not. Recognizing the difference between a contract and an agreement is one of the most common misunderstandings among people. They are frequently used in the same sentence.
When a house owner sends over a rent agreement and says, “Please sign the contract,” it raises questions about whether the document is an agreement or a contract. In movies, we see “contract killers” who demand money to kill individuals. Have you ever considered whether or not a contract to kill someone for money is a legitimate contract? Alternatively, ‘can the contract giver sue the contract killer in court, claiming that the other party breached the contract by failing to complete the job despite payment of money?’ Will a contract be formed if a deed is signed between goons to sell and purchase living beings?
The word contract is commonly used in today’s day and age. Regularly, we engage in contracts without fully understanding the key parts of a legally binding agreement. They regard it as a contract because it is a series of pledges between two friends, brothers, family members, etc. However, some fundamental conditions/requirements must be met to make a valid contract when it comes to the legality of the term contract.
The Indian Contract Act of 1872 oversees contractual relationships between two or more parties, including individuals, organizations, and governments. An agreement enforceable by law is a contract, according to Section 2(h) of the Indian Contract Act 1872 (hence referred to as ICA, 1872)[1]. As a result, a non-legal person may struggle to grasp touch at first glance.
However, it is critical to ascertain that this portion does not occur in isolation; to determine the truthfulness of this section; we must carefully interpret other sections that sync with it.
Contract = Agreement + Enforceable by Law
Whereas all contracts are agreements, not all agreements are contracts; an agreement is a broader expression than a contract. Contracts are formed when agreements meet the requirements of Section 10 of the Indian Contract Act, 1872.
‘Every promise and every combination of promises, comprising the consideration for each other, is an agreement,’ according to Section 2(e)[2] of the Act. We can observe two significant terms necessary for the establishment of an agreement after looking at the definition of agreement. The promise comes first, followed by consideration.
Agreement = Promise + Consideration
A promise is nothing more than an offer or proposition made by one of the parties and accepted by the other[3].
To put it another way, there should be I) Offer and II) Acceptance to make a promise. Acceptance is the second step, followed by consideration. Because a single individual cannot agree with himself, the agreement involves ‘plurality and mutuality of individuals who are party to the contract’ In the end, every agreement is the result of one party making a proposition and the other party accepting it.
Promise = Offer + Acceptance
Both parties make promises in a contract, i.e., the offeror and the offeree. For instance, suppose A commits to deliver certain products to B on a specific day, and B promises to pay.
Difference Between Offer and Invitation to Offer
The terms “offer” and “invitation to offer” are not interchangeable. It’s important to recognise the differences between the two. There is no offer to be bound by any contract when a man advertises that he has a stock of books to sell or houses to rent. Such advertisement is chaffering offers—offers to negotiate—offers to elicit offers.[4]
A contract does not appear out of nothing. It is frequently the result of a protracted bargaining process in which both parties to a potential contract make a variety of declarations for a variety of reasons. Some of these claims will be considered offers. An offer, for example, should be delivered with certainty and clarity. Other expressions that do not qualify as offers, such as “invitations to treat” or “invitations to offer,” may still be legally recognised as “invitations to treat” or “invitations to offer.” An invitation to treat is a request from one party to the other to begin discussions with the goal of eventually entering into a contract. The other party to whom the invitation is sent has the option of accepting or declining the invitation. The showcase of products was an invitation to treat, and the customer’s selection and taking of the goods to the counter amounted to an offer. The contract was only completed when the shopkeeper accepted the offer (i.e. agreed to sell). The shopkeeper, meanwhile, was free to reject the offer at his discretion.
If the principle as mentioned above is ignored, strange things happen: a customer takes up a good and the property passes to him, and the store cannot refuse to sell the good. On the other hand, a customer cannot reject the thing (even if it is faulty), and the shopkeeper will be able to successfully persuade him to buy the item. Both of the outcomes as mentioned earlier are undesirable.
An offer is irreversible. It is a declaration of intent to enter into a contract; Offers cannot exist in a vacuum; they must be made with the goal of establishing a legal relationship. The purpose of the act is to ensure that the contract is enforceable in a court of law. As a result, assigning legal intent to engage into agreement is critical; in the entire definition, it’s challenging to find the element of creating a legal relationship because it’s not explicitly stated, but it’s worth noting that it’s said to be indicated from the section’s spirit. While making an offer, the offeror’s soul is infused with the essence of the intention to obtain the offeree’s assent. An invitation to offer is a step before making a formal offer. It’s done with the intention of inducing and negotiating in general.
An invitation to offer leads to an offer after careful consideration, but it cannot be accepted on its own. When a person presents specific terms on which he is willing to negotiate without declaring his final willingness, he is not making an offer, but rather inviting the other party to make an offer on those terms. The contrast between an “offer” and an “invitation” to receive offers is likely the most fundamental. The distinction was explained by the Privy Council in Harvey v Facey.[5] A simple price quote in response to a letter is not a proposal to sell.
H sent a telegram, “Will you be willing to sell White acre to us?” The cheapest Telegraph”” “Lowest price £ 900,” F answered. “We agree to buy for £ 900 as requested by you,” H telegraphed.
Held: H has only made a purchase offer. F must decide whether or not to accept.
F has declined in this case. As a result, there was no agreement.
There is no declaration of the offeror’s willingness to be bound by his offer in an invitation to offer. It’s just a set of terms on which he’s willing to negotiate. It cannot be accepted as it is.
A shopkeeper’s price list is not an offer; instead, it is an invitation to potential consumers to make an offer to buy at the listed prices or to entice the customers; his goal is to send out an invitation that he is willing to deal with anyone who is willing to engage into a contract with him on the basis of such an invitation, subject to specific terms and circumstances. “The transmission of a price list does not amount to an offer to supply an infinite quantity of the wine specified at the price named, so that there is a binding contract to supply that quantity as soon as an order is placed.”[6] If such were the case, the merchant might find himself with a slew of contractual commitments to supply wine of a certain type that he would be unable to fulfill due to his limited stock of wine of that type.
Likewise, when commodities are sold at auction, the auctioneer does not enter into a contract with everybody who attends the auction. The auction is merely a sales advertisement; the objects are not for sale, even if attendees may intend to buy. In the case of Harris vs. Nickerson, a similar ruling was made (1873).
Conclusion
To summarise, it’s important to difference between an offer and an invitation to make an offer because, during negotiating, a party may mistakenly assume it’s accepting the seller’s offer when, in fact, the party is making an offer. An invitation to offer serves as a prelude to a formal offer. It’s an opportunity for both parties to negotiate and debate the terms they want to agree on if they decide to sign a contract; if they agree on invitation’s terms, an offer is formed without any legal basis, whereas when an offer is accepted, an agreement is initiated.
Only when the seller makes an offer to the bidder will an invitation to offer become a contract. The distinction is thus found in the term “invitation.” It’s a request for any possible buyer to make an offer on the items being offered. Auctioneering, exhibition of goods in a shop, invitation to tender, display of a restaurant’s menu, adverts in the newspaper, invitation to visit an apartment for sale/rent, recruitment offers, request for proposals, and so on are all instances of invitations to offer.
[1] Singh, Avtar. Textbook on Law of Contract and Specific Relief (2016 ed.). Eastern Book Company. p. 488. ISBN 9789351453482.
[2] https://indiankanoon.org/doc/1089645/ {Section 2(e) of Indian contract Act, 1872}
[3] https://indiankanoon.org/doc/1845680/ {Section 2(b) of Indian contract Act, 1872}
[4] Carlill v. Carbolic Smoke Ball Co, [(1893) 1 QB 256 (CA)].
[5] Harvey v Facey, 1893 AC 552.
[6] Grainger & Son v. Gough [1896] AC 325 HL
This Article has been written by Rishi Khemnani, 1st Year, BBA. LL.B(Hons) Student at Symbiosis Law School, Pune.
