Meaning of Proposal Under Indian Contract Act
Q.
1. What do you mean by a contract? Define it and mention its essential
characteristics.
Or
"An
agreement enforceable by law is a contract".
Or
"All
contracts are agreements but all agreements are not contracts".
Or
What
are the essential elements for formation of a contract?
Ans.
Definition of Contract.-
According to Salmond, "Contract is an agreement creating and defining obligations
between parties."
Similarly, Sir Fredrick Pollock has defined the word "Contract" as follows:-
"Every
agreement and promise enforceable at law is a contract."
Anson has defined the word 'contract' in the
following words:
"A
contract consists in an actionable promise or promises. Every such promise
involves two parties, a promisor and a promisee, an expression of the common
intention and of expectation as to the act or forbearance promised."
Essentials
of Contract
•
Proposal
•
Acceptance
•
Promise
•
Consideration
•
Agreement must be
enforceable at law
•
Contract
Proposal
or Offer
Q.
2 Define Offer (proposal) and discuss
its characteristics, and also state, what do you mean by an invitation to offer
?
Or
Explain
that an offer must be capable of creating legal relations. Describe various
kinds of proposals.
Ans.
Definition of Proposal or Offer.- The word proposal is
defined in Section 2 (a) of the Indian Contract, 1872.
According to Section 2 (a) of the Act :
"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."
The word "proposal" of the Indian Contract
Act is synonymous to the term "offer" of the English Law. It must not
be assumed that every statement of a person's intention or of the nature of a
declaration of his willingness to enter into negotiations will amount to a
proposal.
Anson says that an offer must be distinguished from
a statement of intention: for an offer imports a willingness to be bound to the
party to whom it is made. Thus, if 'A' says to X, "I mean to sell one of
my sheep if I can get £ 5 for it," this is a mere statement which does not
admit of being turned into an agreement; but if A says to X, "I will sell
you whichever of my sheep you like to take for £ 5," there is an offer.
Anson again says that there must be something that can amount to an actual
offer which is something more that a mere willingness to treat
The
essentials of a valid offer are as follows:-
1. Offer
may be written, oral or by conduct. Generally offers are made orally or in
writing but offers are also made by conduct [Gaddar Mal v. Tata Industrial Bank Ltd., (1957) 49 All 674].
Automatic weighing machines are very apt examples for offers made by conduct.
The owner of the weighing machines by his conduct of putting the weighing
machine at some public place, makes an offer, though not in writing nor orally.
2. an offer must be one to give rise
to legal consequences-To constitute an offer, offerer must
intend to create a legal obligation. Where such intention is lacking the
agreement is not a contract.
Further, where an agreement clearly provides that it
shall not be subject to legal jurisdiction, there is no contract between the
parties.
Social invitations are examples of offers made
without the intention of creating legal obligations. For example if A invites B
to dinner and then forgets all about it and goes out of town on the stipulated
date B can not claim compensation for expense and inconvenience as there was no
intention to create a legal obligation.
In Balfour v. Balfour, (1919) 2 KB 571,
the husband promised to pay £ 30 to his wife every month. On his failure to
pay, the wife sued him for the recovery of the amount. Held that she could not
recover as the agreement did not create any legal relationship. Warrington L.
J. observed: There is no contract here. These people never intended to make a
bargain which could be enforced in law. The husband expressed his intention to
make this payment and he promised to make it, and was bound in honour to
continue it so long as he was in a position to do so. The wife on the other
hand, made no bargain at all". Offers made in jest or excitement cannot be
construed as offers as they lack contractual intention, and are made without
any thought or intention of creating a binding obligation.
In
Weeks v. Tybold, (1604) 74 ER 982, the defendant in the
course of a casual conversation said that he would give £ 100 to anyone
marrying his daughter with his consent. He was sued for the amount. It was held
that such general words spoken to excite suitors could not be taken as
seriously intended.
In Nutakki Sesharatanan v. Sub-Collector, Land
Acquisition, Vijayawada, AIR 1992 SC 131, it was observed that
the statement of the appellant amounts, in law to no more than an offer. Till
the offer is accepted there is no contract between the parties and the
appellant is entitled to withdraw his offer, as the appellant is in no way
bound to keep the offer open indefinitely.
Rose
and Frank Co. v. Cromption Bros., (1923) 22 K. B. 261.
-The question was as to what is the test of determining as to whether the
parties intended to create legal relation. Lord Atkins observed that, "to
create a contract there must be a common intention of the parties to enter into
legal relations mutually communicated expressly or impliedly:"
Anson
has said, "The intention of the parties is a matter of
inference from their conduct and the inference is more or less easily drawn
according to the circumstances of cases.
State
of Gujarat v. M/s. Variety Body Builders, AIR 1976 SC 2108.
The Supreme Court observed that the
intention has to be primarily gathered
from the terms and conditions which are agreed upon by the parties.
3.
The terms of the offer must be definite or capable of being made definite.
An offer must be certain and definite and not uncertain, vague or loose. If the
offer is uncertain, an essential element is lacking and it cannot be accepted.
In
Taylor v. Portington, 1855, A promised B to take a lease of a
house for three years at £ 85 per annum, if the house were put into thorough
repair and the drawing rooms decorated according to present style Held that the
terms were too uncertain and that the promise could not be enforced.
4.
An offer must be distinguished from an invitation to offer.
An offer is to be distinguished from an invitation to offer exemplified by
advertisements, marked price price of goods displayed in shop windows or
catalogues mentioning prices of goods. In all such cases the trader or
advertiser is simply inviting an offer i.e. indicating that he is willing to
consider an offer to pay the goods on the terms set out in the advertisement or
catalogue. He is not making an offer.
In
Harvey v. Facey, (1893) AC 552 X telegraphed to A
"will you sell Bumper Hall pen? Telegraph lowest cash price answer
paid." A replied by telegram "lowest price Bumper Hall Pen $
900". X telegraphed "we agree to buy $ 900 asked by you".
In a suit by X against A it was held that the mere
statements of the lowest price at which the vendor would sell his estate Bumper
Hall Pen contained no implied lied offer to sell at that price and that the
reply was no reply to the question whether agreed to sell the property. It was
therefore held that there was no concluded
contract between the parties.
In
Machpherson v. Appana, (1951) ASC 184, P wrote offering to
buy, D's property for Rs. 6,000 to which D replied "Won't accept less than
Rs.10,000". P informed his acceptance of the price of Rs. 10,000 but D
sold it for a higher price to another. Held that the mere statement of the
lowest price by D contained no implied offer to sell at that price, that it was
no counter offer which could result in a concluded contract by its acceptance
by P.
5.
Every offer must be communicated to the offeree.
Every offer must be made known to the offeree otherwise he will not be in a
position to accept inasmuch as he will have no knowledge of the offer. The mere
desire to enter into an agreement will not constitute an offer. As observed by
Lord Lindlay "A state of mind not communicated cannot be regarded in
dealings between man and man".
A written communication setting out a definite
proposition will have no effect till it is duly posted and reaches the offeree.
The essence of a contract being mutual assent, communication becomes vitally
important for there cannot be mutual assent if the offer is not communicated to
the offeree.
A proposal must be communicated. Communication may
be made either by words or by conduct. According to Section 4 of Indian
Contract Act, 1872 the communication of a proposal is complete when it comes to
the knowledge of the person to whom it is made. No one can accept a proposal
who is unaware of it.
Lalman
Shukla v. Gauri Dutt, (1913) 11 ALJ 489.-The defendant's
nephew absconded. The plaintiff who was defendant's munim was sent to search
for the missing boy. In the meantime the defendant issued hand bills offering
Rs. 500 to the man who found out the boy. The plaintiff did not know of the
offered reward but traced the boy and on hearing about the reward claimed it.
It was held that the plaintiff had undertaken the duty of searching for the boy
before the reward was offered. In order to constitute a contract, there must be
an acceptance of the offer and there can be no acceptance unless there is a
knowledge of the offer." An act done by a person ignorant of the offer
does not amount to performance of the conditions of the offer.
Invitation
of Offer
Meaning.-A
mere statement of intention made in conversation will not constitute a binding
promise. To constitute an offer the words used must be distinguishable from
mere invitations to transact business and from ordinary advertisement. A
catalogue of goods for sale is not a series of offer but only an invitation for
offer. A mere reply to a query as to price does not constitute proposal to sell
at the price stated. A statement of the lowest price made in answer to an
enquiry as to the lowest price for cash is not an offer but only evidence of
witness to treat.
Therefore, invitation to offer and offer both are
different things and they are two distinct stages of an agreement. Invitation
to offer is stage anterior to the offer.
Illustration.-A,
who is a dealer in wax-works, displays in his shop window a waxen effigy of a
famous film actor with poster prescribed with words 'Price Rs. 600'. B walks
inside the shop and puts Rs. 600 on the counter and demands the effigy. A
refuses. B cannot compel A because the inscription 'Price Rs. 600' was only an
invitation for offers and not an offer in itself whose acceptance creates a
legally binding contract.
An offer must be distinguished from an invitation to
offer because both are different things. Thus the following are not offers but
only invitations for an offer.
(1) A catalogue of goods for sale;
(2) The mere quotation of terms by trader;
(3) Advertisement for sale or auction of goods;
(4) Advertisement for tenders.
But
the following are offers:
(1) A tender to supply goods at a certain time;
(2) A request for a loan;
(3) Bids in an auction sale.
Harvey
v. Facey, (1893) AC 552. In this case, H telegraphed:
"Will you sell us Bumper Hall Pen? Telegraph lowest cash price." F
telegraphed in answer: "Lowest price for Bumper Hall Pen £ 900." H
telegraphed: "We agree to buy Bumper Hall Pen for £ 900 asked by you.
Please send us your title-deeds." No answer was sent to this last
telegram. It was held that there was no contract. H in the first telegraph
asked two questions: (i) "Will you sell? And (ii) What is the lowest
price." And in this answer F did not say, "I will sell for £ 900 ^
prime prime . He only answered the second question. So, H's telegram is really
the offer to pay £ 900 and his offer was for F to accept or not.
Macpherson
v. Appanna, 1951 SCR 161. - The Supreme Court held, that as
a mere statement of the lowest price at which the vendor would sell did not
amount to any implied contract to sell at the price to the person making the
enquiry, the defendant's cable informing his agent of the lowest price cannot
be treated as a counter-offer capable of resulting in a concluded contract on
its acceptance by the purchaser.
GENERAL
AND SPECIFIC OFFERS
An offer need not always be made to an ascertained
person but it is necessary that an ascertained person should accept it. For
example, if a person offers a reward to anyone who finds his lost diamond ring,
the finder can successfully claim the reward. The position will, however, be
different if the finder has no knowledge of the reward. For example, in Lalman Shukul v. Gauri Datt, (1913) 11 All
U 489) it was held that the servant was not entitled to claim the reward
because it came to his knowledge after he had discovered the boy which he was
obliged to do as a servant.
Where an offer is made to the whole world, acceptance
of the offer and performance of the condition will be sufficient for making it
an enforceable contract. A well known illustrative English case on the point is
Carlill v. Carbolic Smoke Ball Co.,
(1893) 1 QB 256.
In this case, the defendants were proprietors and
vendors of 'Carbolic Smoke Ball'. They advertised a reward of £ 100 to any
person who contracted influenza after using the Smoke Ball for a certain period
according to the printed directions. In order to show their sincerity, they
also deposited £ 1000 in a Bank for the same purpose. The plaintiff, a lady,
used the Smoke Ball according to the printed directions yet she contracted
influenza. She brought an action to claim the reward. It was held that she was
entitled to claim the reward. The court pointed out that in advertisement
cases, an offer may be made to the whole world but it becomes a promise only
when it is accepted by an ascertained person.
Cross Offer and Counter
Offer
In contract law, a
cross-offer refers to a situation where two parties make offers to each other,
and there is no acceptance of either offer. This type of situation can create
confusion about whether a contract has been formed or not. In this note, we
will discuss the concept of cross offers under the Indian Contract Act, 1872 and examine some landmark judgments related
to cross offers.
What is a cross offer?
Cross
offer arise when two parties make offers to each other simultaneously or almost
simultaneously, and neither offer is accepted. In this situation, there is no
contract as neither party has accepted the offer made by the other.
Tinn v Hoffman
This
concept was explained in the case of Tinn v Hoffman (1873) LR 29 Ch
D 271, where two parties, Tinn and Hoffman, were negotiating the
sale of some iron goods. Tinn sent a letter offering to sell the goods to
Hoffman at a particular price, and Hoffman replied with a letter offering to
buy the same goods at a lower price.
Tinn
did not accept Hoffman’s offer, and Hoffman did not accept Tinn’s offer. The
court held that there was no contract as neither party had accepted the other
party’s offer.
Bhagwandas Goverdhandas Kedia v. Girdharilal
Parshottamdas and Co.
The
concept of cross offers was further explained in the case of Bhagwandas
Goverdhandas Kedia v. Girdharilal Parshottamdas and Co. (1966) AIR
1966 SC 543. In this case, the plaintiff and the defendant exchanged several
letters negotiating the sale of certain goods. The plaintiff offered to sell
the goods to the defendant, and the defendant made a counteroffer to buy the
same goods at a lower price.
The plaintiff did not
accept the defendant’s offer, and the defendant did not accept the plaintiff’s
offer. The court held that there was no contract as both parties had made cross
offers, and neither offer was accepted.
Counter offers
A
counteroffer is an offer made in response to an initial offer made by the other
party. It is a rejection of the original offer and a new proposal made by the
offeree. In other words, the offeree rejects the initial offer and proposes different
terms, indicating a willingness to enter into a contract on those terms. This
is because a counter-offer modifies the terms of the original offer and
proposes new terms, thus becoming a new offer altogether.
For
instance, if Party A offers to sell a car to Party B for $10,000, and Party B
responds by saying they are willing to buy the car for $9,000, this would be a
counter-offer. Party B is rejecting the initial offer and proposing a new offer
with different terms.
It
is important to note that a counter offer terminates the initial offer and
creates a new offer. Therefore, the original offer cannot be accepted after a
counter offer has been made, unless the original offeror accepts the
counter-offer.
There
are several landmark cases related to counter offers, such as Hyde v Wrench (1840) and Stevenson, Jaques & Co. v McLean (1880). These
cases have helped to establish the legal principles surrounding counter offers
in contract law.
Hyde v Wrench (1840) 3 Beav 334
In
this case, Wrench made an offer to sell his farm to Hyde for £1,000. Hyde made
a counteroffer of £950, which Wrench rejected. Hyde then attempted to accept
Wrench’s original offer of £1,000, but Wrench refused to sell the farm. The
court held that there was no contract as Hyde’s counteroffer of £950 had
terminated Wrench’s original offer, and therefore, Hyde’s attempted acceptance
of the original offer was not valid.
Cross Offer v. Counter Offer
Cross-offer
and counter-offer are two distinct concepts in contract law. While a
cross-offer refers to a situation where two parties simultaneously make
identical offers to each other, a counter-offer is a response made by one party
to an initial offer by the other party that changes the terms of the original
offer.
A
cross-offer occurs when two parties make identical offers to each other,
without either party knowing about the other’s offer. In such a situation,
there is no acceptance because
both parties are making offers at the same time, and neither party has had the
opportunity to accept or reject the other’s offer.
This is because acceptance requires an unequivocal
expression of agreement to the terms of the offer. In a cross-offer situation,
there is no such clear agreement because both parties are simultaneously making
identical offers to each other.
On the other hand, a counter-offer
is a response made by one party to an initial offer made by the other party
that changes the terms of the original offer. In other words, it is a rejection
of the initial offer and a simultaneous making of a new offer.
This new offer becomes the basis of
any subsequent agreement. For example, if Party A offers to sell a car to Party
B for $10,000, and Party B responds by saying that they will only buy the car
for $9,000, Party B has made a counter-offer.
The difference between a
cross-offer and a counter-offer lies in the fact that in a cross-offer, there
is no acceptance. In contrast, in a counter-offer, there is a rejection of the
initial offer and a simultaneous making of a new offer.
This means that a counter-offer terminates the initial
offer, and the offeree cannot subsequently accept the original offer. In
contrast, a cross-offer does not terminate either offer, and both parties are
free to accept or reject the other’s offer.
There have been several landmark
cases dealing with cross-offers in India. In the case of Lalman Shukla v. Gauri Dutt (1913),
the court held that a cross-offer does not result in a valid contract because
neither party has accepted the other’s offer.
Similarly, in the case of Bengal Coal Co v Homee Wadia & Co (1909),
the court held that a cross-offer does not result in a contract because there
is no clear acceptance of either offer.
It is important to note that
cross-offers can also occur unintentionally. For example, if Party A offers to
sell a car to Party B for $10,000, and Party B simultaneously offers to buy the
same car from Party A for $10,000, a cross-offer situation arises. In such
cases, it is important to clarify the terms of the offer to avoid any confusion
or misunderstanding.
Standing, open and continuing offers
In
contract law, offers can be classified into different types based on their
duration and ability to be accepted. The three main types of offers are
standing offers, open offers, and continuing offers.
Standing offers
A
standing offer is an offer that is made to a particular person or group of
people and is valid for a specific period. It is a type of specific offer that
remains open for acceptance during the specified period. For example, if a
company offers to sell a particular product to a specific customer at a fixed
price for a period of one year, this would be a standing offer.
Open offers
An
open offer is a type of general offer that is open to anyone who meets the
specified conditions. It is an offer that remains open for a reasonable period
and can be accepted by anyone who meets the specified conditions. For example,
if a company offers a reward to anyone who returns a lost item, this would be
an open offer.
Continuing offers
A
continuing offer is an offer that remains open for a specified period but can
be accepted multiple times during that period. For example, if a company offers
to supply a particular product to a customer at a fixed price for a period of
one year, and the customer can place orders for the product during that period,
this would be a continuing offer.
It
is important to note that the legal implications of these different types of
offers can vary. For instance, a standing offer can only be accepted by the
person or group of people to whom it is addressed and only within the specified
period. An open offer can be accepted by anyone who meets the specified
conditions within a reasonable period, while a continuing offer can be accepted
multiple times within the specified period.
Bengal Coal Co v Homee Wadia & Co
The
case of Bengal Coal Co v Homee Wadia & Co (1912) is
a landmark case in the area of standing, open and continuing offers.
In
this case, the Bengal Coal Co. offered to sell a certain quantity of coal to
Homee Wadia & Co., stating that the offer would remain open until a
specific date. Homee Wadia & Co. did not accept the offer within the
specified time frame but attempted to do so after the date had passed. The
Bengal Coal Co. refused to accept the order, arguing that the offer had lapsed.
The
court held that the offer made by the Bengal Coal Co. was a standing offer, and
since it had not been accepted within the specified time frame, it had lapsed.
The court stated that the nature of the offer was such that it could only be
accepted within the specified period, and once that period had expired, the
offer was no longer valid.
This
case established the principle that a standing offer can only be accepted
within the specified period, and once that period has expired, the offer
lapses. It also emphasizes the importance of the terms and conditions of an
offer, and how they can impact the validity of the offer.
Rajendra Kumar v State of Madhya Pradesh
The
case of Rajendra Kumar v State of
Madhya Pradesh (1977) is a landmark case related
to the doctrine of continuing offers in contract law.
In
this case, Rajendra Kumar applied for a post in the state government and was
selected for the job. He was given an appointment letter, which stated that he
had to report for duty within a specified period, failing which his appointment
would be deemed as cancelled. Rajendra Kumar failed to report for duty within
the specified period, and his appointment was cancelled.
Rajendra
Kumar challenged the cancellation of his appointment, arguing that the offer
made by the state government was a continuing offer, and therefore, he had the
right to report for duty at any time. The state government argued that the
offer was not a continuing offer, and the appointment was cancelled due to the
failure of the applicant to report for duty within the specified period.
The
court held that the offer made by the state government was not a continuing
offer, and the applicant had to report for duty within the specified period.
The court emphasized that the terms of the offer must be clear and unambiguous,
and in the absence of any ambiguity, the court must give effect to the terms of
the offer.
This
case established the principle that the doctrine of continuing offer applies
only when the offer is clear and unambiguous, and the terms of the offer
provide for a continuing acceptance. It highlights the importance of the terms
and conditions of an offer and their interpretation in determining the validity
of the offer.
References:-
1.
Indian Contract Act
1860.
2.
Indian Contract Act RK
Bangia.
3.
Indian Contract Act By
Avtar Singh
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