Meaning, Essentials, Types and Termination

 A proposal and its acceptance is the universally acknowledged process for the
making of an agreement.
 The term ‘proposal’ used in the Indian Contract Act is synonymous with the term
‘offer’ used in the English law.
 The willingness to do or to abstain from doing something, i.e., the proposal or
the offer may be made with a view to obtain the assent of the other party thereto.
Eg., A’s willingness to sell his radio set to B for Rs.500 if B accepts to purchase
the same, amounts to proposal by A for the sale of the radio set. But if a
statement is made without any intention to obtain the assent of the other party
thereto, that cannot be termed as proposal.
 The person who makes the proposal is called the promisor or
‘offerer’, the person to whom it is made is called the proposee or
‘offeree’ and when he accepts it he is called a ‘promisee’.

 Sec 2(a) defines proposal as, “when a person signifies to another his
willingness to do or to abstain from doing something with a view to
obtaining the assent of that other to such an act or abstinence, he is
said to make a proposal.”

 In view of the above definition, a proposal is in the first place an

expression of the offeror’s willingness to do or to abstain from doing
something. Secondly, it should be made with a view to obtaining the
assent of the offeree to the proposed act or abstinence.
1. An offer must be clear, definite, complete and final. It must not be vague.

Eg., a promise to pay an increased price for a horse if it proves lucky to promisor, is too vague and is

not binding.

2. An offer should be made with an intention to create a legal relationship.

Eg., An agreement to go for a walk or a movie or to play some game cannot be enforced in a court if

law.
3. Offer may be express and implied- The offer may be express or implied; An offer may be express as

well as implied. An offer which is expressed by words, written or spoken, is called an express offer.

The offer which is expressed by conduct, is called an implied offer [Section 9].

4. Offer must be communicated. The process of making a proposal is completed by the act of

communicating it to the other party. The communication of an offer may be made by express words-

oral or written-or it may be implied by conduct.

 In order that an offer, after acceptance, can result in a valid contract, it is
necessary that the offer should be made with an intention to create legal
relationship.
 Sometimes the parties may expressly mention that it is not a formal or
legal agreement, whereas in some other cases such an intention could be
presumed from their agreement. (Balfour vs. Balfour)
 The intention of the parties is naturally to be ascertained from the terms
of the agreement and the surrounding circumstances. It is for the court to
find out whether the parties must have intended to enter into legal
obligations.
 Case – Jones vs. Padavatton (1969)

Brief facts - A divorced daughter lived in Washington with her son who employed on

attractive terms and her mother living in Trinidad, who wished to live near the lady as she

was attached to grandson so she persuaded the daughter much against her will to leave the

job, take legal education in England & finally come back to Trinidad as practicing lawyer

and mother agreed to pay all expenses, purchased a house in England, part of it was rented

out & a part was allowed to her daughter and for 5 long years daughter could not complete

law, in the meantime she got remarried and differences arose between mother & daughter

and mother stopped payments &also commenced eviction proceedings.

Judgment – It was held that there was no intention to create a legal relationship and period

of five years was more than sufficient for the purpose of completing the education. The

daughter could not have expected her mother to support her, her son and husband in

perpetuity. The court therefore allowed the mother’s appeal.

 The test of contractual intention is objective and not subjective. What matters is not what the parties had in

mind, but what a reasonable person would think, in the circumstances, their intention to be.

 Case – CWT vs. Abdul Hussain Muhammad Ali (1988)

Brief Facts – One partner has lent a large sum of money to the other to be utilised as capital in the partnership
venture. The transactions is in the context of a commercial venture. The presumption is that legal obligations
are intended. The onus is on the parties to prove whether the test of contractual obligations are subjective or
objective.

Judgme nt – The Court held that for a reasonable man looking at their contract would at once conclude that
they must have intended to share the amount.

 Case – Meritt vs. Meritt (1970)

Brief facts – The husband and wife were the joint owners of a building which was subject to a mortgage to a
building society. The husband left the matrimonial home to live with another woman. At that time, at the
insistence of the wife, the husband signed a note saying that the wife will pay all outstanding amount in
respect of the house and in return ‘I will agree to transfer the property into your sole ownership.’

Judgme nt – It was held that in this case it was clear that the parties intended to create legal relationship and
therefore the husband was bound by the contract.
 Business and Commercial Agreements encompass a presumption that the parties
to the contract do intend to create legal relations. But this presumption is open to
be rebutted by the clear evidence to the contrary.

 Case – Rose & Frank Co. vs. J.R. Crompton & Bros Ltd. (1923)

Brief facts – An exhaustive agreement was drawn between one American and two
English firms for their dealings in paper tissues. The agreement contained the
following clause: “This agreement is not entered into as a formal legal agreement
and shall not be subject to a legal jurisdiction in the law courts either in the US or
in England.” The agreement was terminated by one of the parties contrary to its
terms. The American firm brought an action for the breach.

Judgment – It was held that the document did not constitute a binding contract as
there was no intention to affect legal relations.
 Letters of Intent –

(i) A letter of intent merely indicates a party’s intention to enter into a

contract on the lines suggested in the letter.
(ii) It is merely a charter containing the terms and general conditions
subject to which a contract would be governed.
(iii) A letter of intent merely indicates a party’s intention to enter into a
contract with the other party in future.
(iv) A letter of intent may be construed as a letter of acceptance, if such
intention is evident from its terms.
(v) The question as to whether the letter of intent is merely an expression of
an intention to place and order in future or whether it is a final
acceptance of the offer thereby leading to a contract, is a matter that has
to be decided with reference to the terms of the letter.
 The first part of the definition of ‘proposal’ lays emphasis upon the requirement that the willingness

to make a proposal should be ‘signified’. To signify means to indicate or declare. The process of

making a proposal is completed by the act of communicating it to the other party.

 Section 3 recognizes the modes of communication:

Communication, acceptance and revocation of proposals - The communication of proposals, the

acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed

to be made by any act or omission of the party proposing, accepting or revoking by which he intends

to communicate such proposal, acceptance or revocation, or which has the effect of communicating

it.

 A proposal may be communicated in any way which has the effects of laying before the offeree the

willingness to do or abstain. It may be done by words of mouth, or by writing or even by conduct.

 Completion of Communication of offer –

As per Section 4 of the Act – “The communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made. An offer cannot be accepted unless and until it has
been brought to the knowledge of the person to whom it is made.”

For eg. A cannot be said to make an offer to B unless A brings the offer to the knowledge of B.
Thus, acting in ignorance of an offer does not amount to acceptance of the offer.

 An offer cannot be accepted unless and until it has been brought to the knowledge of a person to

whom it is made. Thus, acting in ignorance of an offer does not amount to acceptance of the offer.

 Case – Lalman Shukla vs. Gauri Dutt (1913)

Brief facts - The defendant’s nephew absconded from home. The plaintiff, who was defendant’s
servant was sent to search for the missing boy. After the plaintiff had left in search of the boy, the
defendant issued handbills announcing a reward of Rs.501 to anyone who might find out the boy. The
plaintiff who was ignorant of this reward, was successful in searching the boy. When he came to know
of the reward, which had been announced in his absence, he brought an action against the defendant to
claim this reward.
 Judgment – It was held that since the plaintiff was ignorant of the offer of reward, his act
of bringing the lost boy did not amount to the acceptance of the offer, and therefore, he was
not entitled to claim the reward.

 If a person has the knowledge of the offer, his acting in accordance with the terms thereof
amounts to the acceptance of the same. In such a case, it is immaterial that at the time of
accepting the offer, the acceptor does not intend to claim the reward mentioned in the offer.

 Case – Williams vs. Carwardine (1833)

Brief facts – The plaintiff, who knew that reward had been announced to be given to
anyone who gave information leading to the conviction of an assailant for murder, gave the
necessary information. While giving the information, the plaintiff mentioned that she had
given the information ‘to ease her conscience’. At that time, she did not intend to claim the
reward. She, however, subsequently brought an action to claim the same.

Judgment – It was held that since the offer had been accepted with its knowledge, there
was a valid contract and, therefore, she was entitled to claim the reward.
 Express offer

Implied offer

Specific offer

General offer

Cross offer

Counter offer

Standing, Open or
Continuing offer
I. Express and Implied Offers –
 Section 9 reads as, “In so far as the proposal or acceptance of any promise is
made in words, the promise is said to be express. In so far as such proposal or
acceptance is made otherwise than in words, the promise is said to be implied.”
 Express offer is when the offer is made by express communication then the
offer is said to be an express offer. The express offer can be either in words or
in written format.
 Implied Offer is an offer made otherwise than in words. It is an offer inferred
from the conduct of the party. For example – Where a tramway company runs
trams on a particular route, the company is said to make an offer to carry
intending passengers over the route at scheduled fares. The offer of the
company is an implied offer.
 A contract implied in facts requires meeting of minds.
 Case – Upton-on-Severn RDC vs. Powell (1942)

Brief facts – A fire broke out in the defendant’s farm. He believed that he was entitled to the free
services of the Upton Fire Brigade and, therefore, summoned it. The Brigade put out the fire. It then
turned out that the defendant’s farm was not within free service zone of Upton, which therefore,
claimed compensation for the services.

Judgment – The Court held that the truth of the matter was that the defendant wanted the services of
Upton; he asked for the services of Upton and Upton, in response to that request, provided the
services. Hence, the services were rendered on an implied promise to pay for them.

 Case – Haji Mohd. Ishaq vs. Mohd. Iqbal (1978)

Brief facts – On the orders of a go between man, certain goods were supplied by the plaintiff on his
own accounts to the defendants. The defendants clearly and unerringly accepted the goods and paid to
the plaintiff, a part of the price. A liability to pay the balance was held to have arisen.

Judgment – The SC held that the defendants by their clear conduct of accepting the goods and never
repudiating any of the numerous letters and telegrams of the plaintiff demanding the money from
them, clearly showed that a direct contract which in law was called an implied contract by conduct
was brought about between them.
 Case – State of Kerala vs. K.D. Thomas (1996)

In a contract for supply of specified quantity every month by the Government to a dealer,
the court said that, because the date of supply was not prescribed, no term could be
implied that supply should be made in the first week of the month. Supply made in the last
week of the month was held to be not a breach of contract.

II. Specific and General Offers –

 When an offer is made to a specific or an ascertained person, it is known as a specific

offer.

 When the offer is not made to any particular person but to the public at large, it is known

as general offer. Eg., An offer to give reward to anybody who finds a lost dog is a general
offer. This general offer will be deemed to be accepted by anyone who actually finds the
lost dog. Although a general offer is made to the public at large, the contract is concluded
only with that person who acts upon the terms of the offer i.e., who accepts the offer.
 Case - Carlill v Carbolic Smoke Ball Co. (1893)

Brief facts - Company advertised that a reward of £100 would be given to any person who
would suffer from influenza after using the medicine (Smoke balls) made by the company
according to the printed directions. One lady, Mrs, Carlill, purchased and used the medicine
according to the printed directions of the company but suffered from influenza, She filed a
suit to recover the reward of £100.
Judgment - The court held that there was a contract as she had accepted a general offer by
using the medicine in the prescribed manner and as such as entitled to recover the reward
from the company.
III. Cross Offers – When the offers made by two persons to each other containing similar
terms of bargain cross each other in post, they are known as cross offers. For eg., On 1st
January, A offered to sell his watch to B for Rs.2000 through a letter sent by post. On the
same date B also wrote to A making an offer to purchase A’s watch for Rs.2,000. When A
and B sent their letters, they did not know about the offers which was being made by the
other side. In these cross offers, even though both the parties intended the same bargain,
there would arise no contract. A contract could arise only if either A or B, after having the
knowledge of the offer, had accepted the same.
 Two offer are said to be cross offer if –

1. They are made by the same parties to one another

2. Each offer made in ignorance of the offer made by them

3. The terms and conditions contained in both the offers’ are same.

IV. Counter Offers - When the offeree gives a qualified acceptance of the offer subject to some
modifications and variations in the terms of original offer it can be stated as a counter offer. Counter
offer amounts to rejection of the original offer.

 Legal effect of counter offer –

(1) Rejection of original offer

(2) The original offer is lapsed

(3) A counter offer result is a new offer.

 Eg., A offered to sell his pen to B for Rs.1,000. B replied, “ I am ready to pay Rs.950.” On A’s refusal
to sell at this price, B agreed to pay Rs.1,000. Held, there was not contract as the acceptance to buy it
for Rs.950 was a counter offer, i.e. rejection of the offer of A. Subsequent acceptance to pay Rs.1,000
is a fresh offer from B to which A was not bound to give his acceptance.
V. Standing, open and continuous offer – An offer which is allowed to remain
open for acceptance over a period of time is known as standing, open or
continuing offer.

Eg., When we ask the newspaper vendor to supply the newspaper daily. In such
case, we do not repeat our offer daily and the newspaper vendor supplies the
newspaper to us daily. The offers of such types are called Standing Offer.

For eg., An offer to supply 1000 bags of wheat from 1st January to December 31st,
in accordance with the orders which may be placed from time to time, is a
standing offer. As and when the orders are placed that amounts to acceptance of
the offer to that extent. In the above illustration if an order for the supply of 100
bags of wheat is placed on 15th January, there is acceptance of the offer to that
extent and the offeror becomes bound to supply those 100 bags of wheat. So far as
the remaining quantity is concerned, this offer can be revoked just like any other
offer.
 Case – Bengal Coal Co. vs. Homee Wadia & Co. (1899)

The defendants (Bengal Coal Co.) agreed to supply coal to the plaintiffs (Homee
Wadia & Co.) up to a certain quantity at an agreed price for a period of 12 month,
as may be required by the plaintiffs from time to time. The plaintiffs placed orders
for the supply of some coal and the same was complied with. Before the expiry of
the said period of 12 months, the defendants withdrew their offer to supply further
coal, and refused to comply with the orders placed thereafter. They were sued for
the breach of contract.

It was held that there was no contract between the plaintiff and the defendant and
therefore, there could be no liability for the breach of contract. There was simply a
continuing offer to supply coal. They were bound to supply coal only as regards
orders which had already been placed, but were free to revoke their offer for the
supply of coal thereafter.
❑ An offer should be distinguished from an invitation to offer or treat.

 Sometimes a person may not offer to sell his good, but makes some statements or gives some

information with a view to inviting others to make offers on that basis.

For eg., When a man advertises that he has got a stock of books, or sell houses to let, there is no offer

to be bound by any contract. “Such advertisements are offers to negotiate – offers to receive offers –

offers to chaffer.”

 An offer is the final expression of willingness by the offeror to be bound by his offer, should the

other party choose to accept it. The offeror must have expressed his willingness to contract in terms

of his offer with such finality that the only thing to be waited for is the assent of the other party. But

where a party, without expressing his final willingness, proposes certain terms on which he is willing

to negotiate, he does not make an offer, but only invites the other party to make an offer on those

terms.
 Case - Harvey vs. Facey (1893)

The plaintiffs telegraphed to the defendants, writing: “Will you sell us the Bumper Hall Pen?

Telegraph lowest cash price”. The defendants replied also by a telegram: “Lowest price for Bumper

Hall Pen, £ 900”. The plaintiffs immediately sent their last telegram stating: “We agree to buy the

Bumper Hall Pen for £ 900.”

The defendants, however, refused to sell the plot of land at that price. The plaintiffs contended that by

quoting their minimum price in response to the enquiry the defendants had made an offer to sell at that

price. But the Judicial Committee turned down the suggestion. Their Lordship pointed out that in their

first telegram, the plaintiffs had asked two questions, first, as to the willingness to sell and, second, as

to the lowest price. They reserved their answer as to the willingness to sell. Thus, they made no offer.

The last telegram of the plaintiffs was an offer to buy, but that was never accepted by the defendants.

 Inviting persons to an auction, where goods to be auctioned are displayed, is not an offer for sale of

goods. The offer is made by the intending buyers in the form of bid. Such an offer(bid), when accepted

by the fall of hammer in some other customary way, will result in a contract.
 Case – Executive Engineer, Sundergarh vs. M.P. Sahu (1990)

Advertisements calling for tenders is not a proposal or offer but merely an invitation to the contractors

for making an offer. The submission of a tender is in the nature of an offer. It will result in a contract

only when the tender is accepted. Making of the highest bid will not automatically result in a contract.

The contract will arise only when the highest bid is accepted by the competent authority and the said

acceptance is communicated to the tenderer.

 An advertisement by the auctioneer to sell goods by an auction being an invitation to treat rather than

an offer, he does not incur any liability by not accepting the offer which is in the form of a bid. An

auctioneer is even free to cancel an auction sale announced by him.

 Case – Harris vs. Nickerson (1873)

The defendant advertised a sale by auction. The plaintiff travelled to the advertised place of auction to

find that the defendant had cancelled the auction sale. He brought an action against the defendant to

recover the expenses of his travel. It was held that he was not entitled to the same as there was yet no

contract between the two parties, which could make the defendant liable.
 Display of goods either in a show-window or inside the shop and such goods bear price tags,

would not amount to an offer to sell the goods at prices mentioned on the price tags. It would be

mere invitation to offer.

 Case – Pharmaceutical Society of Great Britain vs. Boots Cash Chemists Southern Ltd.

(1952)

In this case, the defendants were having the business of retail sale of drugs. Medicines were

displayed on the shelves and their retail prices were also indicated. They as “self-service”

system. On entry into the shop a customer was given a wire basket. After selecting the articles

needed by the customer he could put them in the basket and take them to the near cash counter,

who has been authorised to stop any customer removing any drug from the premises.

It was held that the display of articles, even on a “self-service” basis was not an offer but merely

an invitation to treat. When the customer selected an article and brought the same to the cash

counter that amounted to an offer to buy the goods. The defendants were, therefore, free to

accept the offer or not.

 Is online shopping an offer or invitation to offer?
 Issue of shares in prospectus by a Company is an
offer or invitation to offer?
 Is advertisement for a face cream an offer or
invitation to offer?
 Advertisement of sale of plot is an offer or invitation
to offer?
 Menu Card of a restaurant is an offer or invitation to
offer?
 According to Section 5 - A proposal may be revoked at any time before the

communication of its acceptance is complete as against the proposer, but not afterwards.

 Section 6 states how Revocation is made. A proposal is revoked—

(1) by the communication of notice of revocation by the proposer to the other party;

(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is

so prescribed, by the lapse of a reasonable time, without communication of the

acceptance;

(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or

(4) 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.

 An offer should be accepted before it lapses (i.e. comes to an end). An offer may come to an end in
any of the following ways stated in Section 6 of the Indian Contract Act:

1. By communication of notice of revocation: An offer may come to an end by communication of

notice of revocation by the offeror. It may be noted that an offer can be revoked only before its
acceptance is complete for the offeror. In other words, an offeror can revoke his offer at any time
before he becomes before bound by it. Thus, the communication of revocation of offer should reach
the offeree before the acceptance is communicated.

 Case – Dickinson vs. Dodds (1876)

Facts - The defendant, Mr Dodds, wrote to the complainant, Mr Dickinson, with an offer to sell his
house to him for £800. He promised that he would keep this offer open to him until Friday. However,
on the Thursday Mr Dodds accepted an offer from a third party and sold his house to them. It was
claimed that Mr Dickinson was going to accept this offer, but had not said anything to Mr Dodds
because he understood that he had until Friday. Mr Dodds communicated that the offer had been
withdrawn through a friend to the complainant. After hearing this, Mr Dickinson went to find the
defendant, explaining his acceptance of the offer. The complainant brought an action for specific
performance and breach of contract against the defendant.
 Judgment - The court held that the statement made by Mr Dodds was nothing more than a

promise; there was no binding contract formed. He had communicated an offer for buying

his house to the complainant and this offer can be revoked any time before there is

acceptance. There was no deposit to change this situation. Thus, as there was no obligation

to keep the offer open, there could be no ‘meeting of the minds’ between the parties. In

addition, the court stated that a communication by a friend or other party that an offer had

been withdrawn was valid and would be treated as if it came from the person themselves.

2. By lapse of time: Where time is fixed for the acceptance of the offer, and it is not

acceptance within the fixed time, the offer comes to an end automatically on the expiry

of fixed time. Where no time for acceptance is prescribed, the offer has to be accepted

within reasonable time. The offer lapses if it is not accepted within that time. The term

‘reasonable time’ will depend upon the facts and circumstances of each case.
 Case - Ramsgate Victoria Hotel v Montefiore (1866)

Facts - The defendant, Mr Montefiore, wanted to purchase shares in the complainant’s hotel.

He put in his offer to the complainant and paid a deposit to his bank account to buy them in

June. This was for a certain price. He did not hear anything until six months later, when the

offer was accepted and he received a letter of acceptance from the complainant. By this time,
the value of shares had dropped and the defendant was no longer interested. Mr Montefiore

had not withdrawn his offer, but he did not go through with the sale.

Judgment - The court held that the Ramsgate Victoria Hotel’s action for specific performance

was unsuccessful. The offer that the defendant had made back in June was no longer valid to

form a contract. A reasonable period of time had passed and the offer had lapsed. The court
stated that what would be classed as reasonable time for an offer to lapse would depend on the

subject matter. In this case, it was decided that six months was the reasonable time before

automatic expiration of the offer for shares.

3. By failure to accept condition precedent: When the offer subject to some condition precedent ,

such a condition has got to be fulfilled by the acceptor before making the acceptance. If the

acceptor fails to fulfill the condition precedent to acceptance, the offer stands revoked.

 Case – State of M.P. vs. Goberdhan Dass (1973)

Tenders for the sale of certain goods were invited subject to the condition that 25% amount was to

be paid when the tender was accepted. A’s tender was the highest bid and the same was accepted,

but he failed to fulfill this condition. It was held that no contract had arisen merely because A’s

tender was accepted. Therefore, if A failed to take the goods and pay for them, he could not be

made liable for the breach of contract.

4. By the death or insanity of the offeror: Where, the offeror dies or becomes, insane, the offer

comes to an end if the fact of his death or insanity comes to the knowledge of the acceptor before

he makes his acceptance. But if the offer is accepted in ignorance of the fact of death or insanity of

the offeror, the acceptance is valied. This will result in a valid contract, and legal representatives of

the deceased offeror shall be bound by the contract. On the death of offeree before acceptance, the

offer also comes to an end by operation of law.