Essentials of Valid Offer Under Indian Contract Act

Introduction

A contract can be defined as an agreement between two or more people to accomplish a certain goal while defining each party’s rights and responsibilities. In our day-to-day life Contracts play an important role, from insurance plans to labor contracts. Indeed, we enter into contracts without even realizing it, such as when we buy a movie ticket or install an app. A contract is a mixture of mutual consent and legal enforceability. The offer and acceptance are the first or first steps in any deal. At least two parties are involved in the contract, one of whom is the offeror and the other is the offeree.[1]Contracts are oral or written agreements between two or more parties.” A contract might include individuals, corporations, non-profits, and government agencies. The entire contracting process starts with one party making an offer, which is accepted by the other, and a consideration exchange.[2]

As a contract is a legally binding agreement whose terms may be enforced and maintained by the courts, it is derived from an agreement. An agreement, on the other hand, is a less formal construction of an obligation between parties that is wider than a contract. In India, the contract is governed by the Indian Contract Act, 1872. As per the provisions of the Indian Contract Act, 1872, for a contract to be valid it has four important elements i.e., Offer, Acceptance, Consideration and Legal Enforceability.[3]

What is Offer

To bring the contract in motion there has to be an offer and as per the Indian Contract Act, 1872 an offer is defined under Section 2(a) 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 abstinence, he is said to make a Proposal”[4]

An offer is a declaration made by one person to another that they are willing to engage in a contract on specific terms without further negotiation. A contract is considered to exist when the offeree conveys his or her acceptance of an offer to the offeror.

Characteristics of Offer

The offer comprises two main characteristics, firstly a promise made by the offeree and a request made to the offeree to get something in return. There are some basic characteristics of offer or proposals:

1. Now when a person out forwards the offer or the proposal then that person is called a “promisor” or an “offeror”. Further, if the person accepts the offer made to him then that person is called a “promise” or the “acceptor”.

2. Now when the offer is made, the offeror is supposed to express his willingness or whether he is intentional in acting upon his offer. Now, this does not only confine to the willingness, the offeror can also express his desire to abstain from doing the act. Now it can be said that only to desire or to put forward the willingness cannot result in an offer, it is not a necessary aspect.

3. For a valid offer, it does not always have to be a positive offer. An offer can be a negative one too. This means that a person can promise to do a particular task or not to do the task. Both the promises comprise to be valid offers.

Various types of offers can be made depending upon nature, or the intention, etc. offers that can be made are, General Offer, Cross offer, Special Offer and Counter Offer.

In order to initiate an offer, there must be the presence of intentions to proceed with the offer. Now, the word intention does not come under the Indian Contract Act but the word “willingness” is mentioned under Section 2 (a) of the Indian Contract Act, which in many ways is the same as intention. In Rose & Frank Co., very. Crompton & Bros. Ltd[5], revolves around the issue that an offer if made should be in at least this much power to establish legal relationships between both parties. In the instant case when companies entered into an agreement about the exchange and purchase of toilet paper at a certain price. The agreement made between both the companies stated that “This agreement is not entered into nor is the memorandum written as a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts”. Later this agreement stood void since the contract does not give any possible legal consequences.

Essentials Of Valid Offer

1. Communication:

It is one of the important essentials of valid offer and the offer must be communicated. To make it a valid offer there must a communication of offer as it is the most essential feature of a valid offer. There, is no specific provisions as it must be in writing or so this means it can be oral or in writing. In addition to this, the offer can be general or may be specific to which it is communicated. It was held in the case of Lalman Shukla v. Gauri Dutt[6]that in order to constitute a valid contract there must be communication to people and the person can claim a reward if he gives his consent and performs the terms of the proposal.[7]

2. Intention to Create Legal Obligation:

A legitimate offer establishes a legal connection, implying that the offeror intends to labor under legal responsibility or to be legally bound by law rather than under social responsibility. According to Section 10 of the Indian Contract Act, 1872, the purpose to form legal relations is not a required part of a contract; however, this concept is regarded as a required part of an offer in English law. In the case of Balfour V. Balfour[8]was about a case of a married couple within which the husband has promised to pay some remuneration to his wife but he failed to do so. The wife filed a suit for the enforcement of this contract but the contention of the wife was rejected on the ground that there was no intention to create legal relation and because of this the agreement was not valid.

3. An offer may be express or implied:

An offer may be express or emplied is another vital essentials of valid offer. An express offer is made in words, written or spoken, according to Section 3 of the Indian Contract Behavior, whereas an implicit offer is made by the offeror’s act or behavior, according to Section 9 of the Indian Contract Act. In one of the landmarks cases of Uptron Rural District Council V. Powell[9] the defendant has asked the plaintiff to do the services as he thought they will do it for free. But as the service was not entitled to a free service zone the plaintiff demanded money for their services. It was held that the defendant desired and requested Upton’s services, according to the court, and they were given. As a result, the services were deemed to be delivered based on an implied commitment to pay.

4. General offer need not be specifically accepted:

A general offer is extended to the entire globe and can be accepted by anybody without having to inform the offeror. The defendants in the Carlill V. Carbolic Smoke Ball Co.[10]the case was in the business of making some balls and placed an advertisement in the newspaper promising a prize if anybody caught influenza after using them. The plaintiff has contracted influenza after using it in a prescribed manner and thus sued the company for compensation and succeeded as the court the general offer is breached as soon as she contracted influenza.

5. Offer is different from Invitation to Offer:

Offer is different from Invitation to Offer is the other essentials of valid offer. Section 2 of the Indian Contract Act of 1872 defines an offer. In contrast, the Indian Contract Act of 1872 makes no mention of an invitation to bid. The fundamental difference between the two is that an offer is made to enter into a contract, whereas an invitation to offer is issued to obtain an offer to enter into a contract.[11]

The phrase “invitation to offer” is derived from the Latin phrase “invititatio ad offerendum” which translates as “invitation to deal.” When a person makes an offer, he or she does not anticipate being bound as soon as the person to whom the offer is made accepts it. It’s a gesture that asks the other party to respond with a counter-offer. An offer, on the other hand, lays forth the major terms of the agreement to end further discussions. Advertisements, commodity displays, product auctions, tenders, and so on are all instances of invitations to offer. The question arose whether the action of the customer constituted an offer or was it an acceptance to the offer in the case of Pharmaceutical Society of Great Britain V. Boots Cash Chemists (Southern) Ltd.[12]wherein the court held that- “it was an offer to buy and no sale would take place until the buyers offer is accepted at the price offered.[13]

Revocation of Offer

A proposal can be revoked if the period mentioned in the proposal has elapsed, or if no period is mentioned in the offer, the proposal would expire once a fair amount of time has elapsed. When the proposer dies or becomes insane, and the acceptor learns about his death or insanity before accepting the proposal. When a proposal’s acceptance is communicated in such a way that it is beyond the acceptor’s control, it is completely against the proposer.[14] The proposing party must notify the other party of the cancellation before the other party accepts the offer.[15]When the revocation is communicated to the other party, the original proposal is canceled, and the other party cannot legitimately accept the proposal since it no longer exists. When the revocation is transmitted to the proper person, it takes effect. In the Indian Contract Act, Section 5 deals with the revocation of proposals. In the case of Payne v. Cave (1789), it was held that – “bid amounted to an offer which he was entitled to withdraw at any time before the auctioneer signified acceptance by knocking down the hammer[16]

Conclusion

In contract law, offer and acceptance analysis is a basic process for determining whether two parties have achieved an agreement. An offer is a declaration made by one person to another that they are willing to engage in a contract on specific terms without further negotiation. A contract is considered to exist when the offeree conveys his or her acceptance of an offer to the offeror. An offer’s communication is full when the person to whom the offer is made is aware of it, and an acceptance’s communication is full when the acceptance is placed in a transmission channel to the offerer.

To summarise, a proposal and acceptance can be canceled at any time prior to the formation of a legal contract. To establish a binding contract, a proposal can be revoked at any time until final acceptance is given to the proposer. Furthermore, an acceptance can be canceled at any time before it is completely transmitted to the acceptor. As a result, offer and acceptance are critical components of a contract, and they should be made freely and with the intent to enter into a legally binding agreement in any case.

[1] Srishti Chawla, Definition and Essentials of Offer and Acceptance, BlogIpleaders, available at- https://blog.ipleaders.in/definition-essentials-offer-acceptance/

[2]Chinmay Singhi, What is Offer? Essentials of Valid Offer and Types of Offer, LatestLaws, available at-https://www.latestlaws.com/articles/what-is-offer-essentials-of-a-valid-offer-and-types-of-offer/

[3]Avtar Singh, Law of Contract & Specific Relief (12 ed., Eastern Book Company, 2019).

[4] Section 2(a), Indian Contract Act, 1872.

[5]Rose & Frank Co., very.  Crompton & Bros. Ltd., 1923(2) KB 261

[6](1913) 11 ALJ 489.

[7]Supra note 2.

[8](1919) 2 KB 571.

[9]1942; 1 All ER 220.

[10]1893, 1 Q.B. 256.

[11]Supra note 1.

[12]1952, 2 Q.B. 795.

[13]Id.

[14] Section 4, Indian Contract Act, 1872.

[15]Meera Annie Koshy, What do you mean by revocation of proposals and acceptance under a contract, BlogIpleaders, available at- https://blog.ipleaders.in/mean-revocation-proposals-acceptance-contract/

[16]Id.

This article has been written by Yashi Singh, 2nd Year B.A LL.B student at Maharashtra National Law University, Mumbai.

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