Introduction
An offer, called a proposal under the Indian Contract Act, 1872, is the starting point of a contractual relationship. Before a contract can generally be formed, one party must communicate a willingness to enter into a legal relationship and invite the assent of the other party.
Section 2(a) of the Indian Contract Act, 1872 provides the statutory definition of a proposal:
“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.”
Thus, an offer is more than a statement of intention. It is a communication made with the purpose of obtaining the assent of another person.
For example, A says to B:
“Will you purchase my car for ₹1,00,000?”
Here, A has made a proposal to B. A is the proposer or offeror, while B is the offeree.
Once the offeree accepts the proposal, it becomes a promise under Section 2(b).
The basic sequence is:
Offer → Acceptance → Promise → Agreement → Contract
Meaning of Offer or Proposal
An offer can be made to a particular person, a group of persons, or, in appropriate circumstances, to the public generally.
The person making the proposal is known as the:
- Offeror
- Proposer
The person to whom the proposal is made is known as the:
- Offeree
After acceptance, the terminology changes: the proposer becomes the promisor, and the acceptor becomes the promisee.
Example
A offers to sell his laptop to B for ₹40,000.
- A = Offeror/Proposer
- B = Offeree
- If B validly accepts = Promise is created
Essentials of a Valid Offer
For an offer to be legally effective, certain requirements must be satisfied.
1. There Must Be a Proposer and an Offeree
An offer involves at least two parties: one person who makes the offer and another person whose assent is sought.
A person cannot make an offer to himself.
Example
A offers to sell his bicycle to B for ₹10,000. A is the proposer and B is the offeree.
2. The Offer Must Be Communicated
An offer must be communicated to the person to whom it is made.
A person cannot accept an offer of which he has no knowledge.
This principle is clearly illustrated by Lalman Shukla v. Gauri Dutt (1913). Gauri Dutt’s nephew had gone missing, and Lalman Shukla, his servant, was sent to search for him. A reward was announced while Lalman was already engaged in the search, but Lalman did not know about the reward when he found and returned the boy. The Allahabad High Court rejected his claim to the reward because he had performed the act without knowledge of the offer.
Principle
An offer cannot be accepted without knowledge of the offer.
Therefore:
No knowledge of offer → No acceptance → No contract based on that offer
3. The Offer Must Show an Intention to Obtain Assent
The offeror must intend to obtain the assent of the offeree.
A mere statement about a future plan, wish or intention does not ordinarily constitute an offer.
Example
A tells B:
“I intend to sell my car next month.”
This is merely a statement of intention.
But if A says:
“Will you buy my car for ₹5,00,000?”
the statement may constitute an offer because it is made with a view to obtaining B’s assent.
4. Mere Expression of Willingness Is Not Always an Offer
A statement must be sufficiently definite and show an intention to be bound upon acceptance.
Example
A tells B:
“I am thinking of selling my house.”
This does not ordinarily constitute an offer.
An offer requires a communication capable of being accepted and converted into a binding promise, subject to the other requirements of contract law.
5. The Offer Must Be Certain and Definite
The terms of an offer must be sufficiently clear and certain.
A vague or ambiguous statement cannot normally form the basis of a contract because the parties must be able to determine what exactly was offered.
Example
A says to B:
“I will sell you 100 tons of oil.”
If nothing indicates what kind of oil is being referred to and the term cannot otherwise be made certain, the offer may be too uncertain to create an enforceable contract.
This principle is consistent with Section 29, which deals with agreements whose meaning is not certain or capable of being made certain.
6. The Offer Must Be Capable of Creating Legal Relations
A proposal must be made with the intention of creating legal obligations.
Social and domestic arrangements generally do not give rise to contractual liability because the circumstances may show that the parties did not intend legal consequences.
Example
A invites B to dinner at his home and B accepts.
If A later fails to provide dinner, B ordinarily cannot sue A for breach of contract. The arrangement is normally social rather than contractual.
Commercial transactions, on the other hand, generally carry an expectation of legal consequences, depending upon the circumstances.
7. An Offer May Be Express or Implied
Under Section 9, proposals may be express or implied.
Express Offer
An offer made through words, whether oral or written, is an express offer.
Example
A says to B:
“I will sell my phone to you for ₹20,000.”
Implied Offer
An offer may be inferred from conduct or circumstances.
Example
A transport service operates buses for passengers who pay the prescribed fare. The conduct and circumstances may indicate an implied offer to carry passengers on the stated terms.
8. The Offer May Involve an Act or Abstinence
A proposal may require the offeree to:
- do something; or
- abstain from doing something.
Section 2(a) expressly recognizes both possibilities.
Example
A offers B ₹10,000 if B refrains from carrying on a specified activity for a particular period, provided the arrangement itself is lawful and otherwise enforceable.
9. A Joke or Mere Social Statement Is Not an Offer
A statement made merely in jest or without the necessary intention to create legal consequences will not ordinarily constitute a contractual offer.
The court examines the objective circumstances surrounding the statement rather than simply the private intention of the person making it.
Therefore, a humorous or casual statement will not automatically create contractual liability.
Communication of Offer
Communication is an essential element in the formation of a contractual relationship.
Section 4 provides that communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
Example
A writes to B offering to sell his car for ₹5,00,000.
A posts the letter on 2 July, and B receives it on 4 July.
The communication of the proposal is complete when the offer comes to B’s knowledge, i.e., ordinarily on 4 July.
In instantaneous communication such as a face-to-face conversation or telephone communication, the offer is generally communicated when it is brought to the offeree’s knowledge.
The Supreme Court explained the operation of Section 4 in Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. (1965), including the rules governing communication of proposals and acceptances.
Communication of Acceptance
The rules for communication of acceptance under Section 4 differ from the rule applicable to communication of a proposal.
Section 4 provides that communication of acceptance is complete:
Against the Proposer
When the acceptance is put into a course of transmission to the proposer so as to be beyond the power of the acceptor.
Against the Acceptor
When the acceptance comes to the knowledge of the proposer.
Example
A makes an offer to B.
B accepts through a letter and posts the acceptance on 10 July. The letter reaches A on 14 July.
Subject to the statutory rules and the circumstances of the transaction:
Against A (proposer): communication of acceptance is complete when B puts the acceptance into transmission.
Against B (acceptor): communication is complete when A receives or acquires knowledge of the acceptance.
The Supreme Court discussed these principles in Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co., particularly in the context of communication through telephone.
Mode of Acceptance
Acceptance may be communicated by:
1. Words or Acts
Acceptance can be communicated through spoken or written words, including appropriate electronic communications.
2. Conduct
Acceptance may also be inferred from conduct where the circumstances and law permit.
For example, a passenger who boards a bus and travels under the ordinary terms of the service may demonstrate assent through conduct.
However, the conduct must objectively indicate acceptance. Mere silence does not ordinarily constitute acceptance.
Acceptance Must Generally Be Communicated
A mental decision to accept an offer is not ordinarily sufficient.
There must be an external manifestation of assent, unless the law or the circumstances of the offer indicate that performance itself constitutes acceptance.
The Supreme Court in Bhagwandas Goverdhandas Kedia emphasized the importance of communication and external manifestation of acceptance.
Counter-Offer
A counter-offer arises when the offeree responds to an offer by proposing different or modified terms instead of accepting the original offer unconditionally.
A counter-offer generally amounts to rejection of the original offer.
Example
A offers to sell his pen to B for ₹1,000.
B replies:
“I will buy it for ₹950.”
B has not accepted A’s offer. Instead, B has made a counter-offer.
If B later says:
“I will now pay ₹1,000,”
there is not automatically a contract based upon the original offer. A must accept the subsequent proposal, unless the original offer otherwise remains legally open.
Legal Effect of Counter-Offer
A counter-offer generally:
- Rejects the original offer;
- Terminates the original offer; and
- Creates a new proposal capable of acceptance.
Cross Offers
Two offers are known as cross offers when two parties make identical offers to each other independently and without knowledge of the other person’s offer.
Example
A posts a letter to B offering to sell 100 tons of steel at ₹1,000 per ton.
On the same day, without knowing A’s offer, B posts a letter to A offering to buy 100 tons of steel at ₹1,000 per ton.
These are cross offers.
Important Principle
Cross offers do not by themselves constitute acceptance.
A contract arises only when one party subsequently accepts the other’s proposal in the manner required by law.
Offer Must Not Impose Acceptance by Silence
An offeror cannot ordinarily state:
“If I do not hear from you, I will assume that you have accepted.”
Silence by itself does not generally amount to acceptance.
The offeree must communicate assent or perform the act contemplated by the offer where performance is the prescribed method of acceptance.
The Supreme Court has emphasized that an offeror cannot impose an obligation on the offeree to accept or treat silence as consent merely by declaring it so.
Offer and Invitation to Offer
One of the most important distinctions in contract law is between an offer and an invitation to offer.
An invitation to offer, sometimes called an invitation to treat, is not itself an offer. It is an invitation to others to make offers.
Common Examples
1. Menu Card
The menu displayed by a restaurant generally invites customers to place orders; the order and its acceptance form part of the contractual process.
2. Price Tags
Goods displayed in a shop or supermarket with price tags generally constitute an invitation to customers to make an offer to purchase. The transaction is completed when the seller accepts the customer’s offer according to the circumstances.
3. Advertisement for Employment
An advertisement inviting applications for a job is generally an invitation to potential candidates to submit applications.
4. Tender Notice
A notice inviting tenders generally invites interested persons to submit offers.
5. Auction Advertisement
An advertisement announcing an auction generally invites potential bidders to participate. The advertisement itself does not ordinarily amount to an offer to sell the goods to every person who attends.
Difference Between Offer and Invitation to Offer
| Basis | Offer | Invitation to Offer |
|---|---|---|
| Meaning | Willingness to enter into a contract on stated terms | Invitation to others to make offers |
| Purpose | Obtaining assent | Inviting proposals |
| Legal effect | Can become a promise when accepted | Does not itself normally become a contract merely through response |
| Acceptance | Valid acceptance may create a binding contract | A response generally constitutes an offer requiring acceptance |
| Example | A says, “I will sell my laptop to B for ₹30,000.” | Goods displayed with price tags in a shop |
Kinds of Offer
Offers can be classified in several ways.
1. Express Offer
An express offer is communicated through spoken or written words.
Example
A writes to B:
“I offer to sell my car to you for ₹5,00,000.”
2. Implied Offer
An implied offer is inferred from conduct or the circumstances of the case.
Example
A taxi operator holds himself out as available to transport passengers on payment of the prescribed fare. The contractual terms may be inferred from the conduct and circumstances.
3. Specific Offer
A specific offer is made to a particular person or a particular group of persons.
It can generally be accepted only by the person or persons to whom it is made, subject to the circumstances.
Example
A offers to sell his house to B for ₹20 lakh.
The offer is made specifically to B.
4. General Offer
A general offer is made to the public at large or to a class of persons.
It can be accepted by a person who has knowledge of the offer and performs the conditions specified in it, where the offer is of a type capable of acceptance by performance.
Carlill v. Carbolic Smoke Ball Co.
The classic example is Carlill v. Carbolic Smoke Ball Co.
The company published an advertisement promising a reward to persons who used its smoke ball according to the prescribed directions but nevertheless contracted influenza. Mrs. Carlill saw the advertisement, used the product according to the stated conditions, and subsequently contracted influenza. The English Court of Appeal held that the advertisement was capable of constituting a general offer and that she could accept it through performance of the stipulated conditions.
Principle
A general offer may be accepted by performing the conditions specified in the offer.
Unlike an ordinary bilateral transaction, the nature of such an offer may make separate prior communication of intention to accept unnecessary.
5. Cross Offer
A cross offer occurs when two parties make identical offers to each other independently and without knowledge of each other’s offer.
Two cross offers do not constitute acceptance of each other.
6. Counter-Offer
A counter-offer is an offer made in response to an original offer but on modified or different terms.
It generally amounts to rejection of the original offer.
Example
A offers to sell a table for ₹10,000.
B replies:
“I will buy it for ₹8,000.”
B has made a counter-offer.
7. Standing, Open or Continuous Offer
An offer that remains open for acceptance over a period of time is commonly known as a standing, open or continuing offer.
Tender arrangements for the repeated supply of goods are a common illustration.
Example
A newspaper vendor agrees to supply a newspaper every morning to B for the applicable daily price.
The arrangement may be understood as involving continuing offers or contractual transactions depending upon the particular terms.
Standing offers are particularly relevant in commercial supply arrangements.
Lapse of an Offer
An offer does not remain open indefinitely. Section 6 of the Indian Contract Act, 1872 provides several ways in which a proposal may be revoked or come to an end.
1. Revocation by Notice
Under Section 5, a proposal may generally be revoked at any time before the communication of acceptance is complete as against the proposer, but not afterwards.
Therefore, the timing of revocation is critical.
Example
A makes an offer to B.
B posts his acceptance at a point at which communication of acceptance becomes complete as against A. A cannot subsequently revoke the offer merely because B’s acceptance has not yet reached him.
The precise operation of the rule depends on the mode of communication and the statutory provisions applicable to it.
2. Lapse of Time
Where the offer prescribes a particular period for acceptance, the offer lapses when the prescribed period expires without valid acceptance.
Where no period is prescribed, the offer must generally be accepted within a reasonable time.
What constitutes reasonable time depends upon the circumstances, including the nature of the transaction and the means of communication.
Example
A offers to sell a perishable commodity and asks B to accept the offer within one day. If B does not accept within the stipulated period, the offer may lapse.
3. Failure to Fulfil a Condition Precedent
Where an offer is subject to a condition that must be fulfilled before acceptance, failure to satisfy that condition may prevent a valid acceptance.
Example
A offers to sell a property to B provided B first obtains a particular approval. If B attempts to accept without fulfilling the required condition, the purported acceptance may not be effective according to the terms of the offer.
4. Death or Insanity of the Offeror
Under Section 6, an offer may be revoked by the death or insanity of the proposer if the fact of the death or insanity comes to the knowledge of the offeree before acceptance.
The timing and knowledge of the event are therefore important.
It is not correct to state that every offer automatically becomes ineffective merely because the offeror dies or becomes mentally incapable. The statutory rule depends on whether the relevant fact becomes known to the offeree before acceptance.
5. Counter-Offer
An offer may come to an end when the offeree makes a counter-offer.
A counter-offer ordinarily rejects the original proposal.
Example
A offers to sell his car for ₹6 lakh.
B says:
“I will purchase it for ₹5.5 lakh.”
B has made a counter-offer, and the original offer is ordinarily no longer open for simple acceptance.
6. Rejection by the Offeree
An offer comes to an end when the offeree rejects it.
Rejection may be:
- Express, or
- Implied from conduct.
Once an offer has been rejected, the offeree cannot ordinarily revive it merely by attempting to accept it later. A fresh offer may instead be made.
7. Failure to Accept in the Prescribed Manner
This point requires an important distinction.
Under Section 7, acceptance must be absolute and unqualified and must be expressed in the prescribed or usual and reasonable manner, depending upon the circumstances.
If the offeror prescribes a particular manner of acceptance and the offeree uses another method, the offeror may, within a reasonable time, insist upon acceptance in the prescribed manner. Therefore, it is not always correct to say that an offer automatically lapses simply because the prescribed mode was not followed.
8. Change in Law or Subsequent Illegality
An offer or proposed transaction may become incapable of acceptance or performance where a change in law makes the contemplated transaction unlawful or impossible.
In such circumstances, the legal consequences depend upon the nature and timing of the change and the applicable provisions of contract law.
Important Case Law on Offer and Communication
Lalman Shukla v. Gauri Dutt
Principle: Knowledge of the offer is necessary for acceptance. A person who performs the required act without knowing about the offer cannot ordinarily claim the reward on the basis of that offer.
Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co.
Principle: The Supreme Court explained the rules under Section 4 regarding communication of proposal, acceptance and revocation, including communication through telephone and other instantaneous methods.
Carlill v. Carbolic Smoke Ball Co.
Principle: A sufficiently definite advertisement may constitute a general offer capable of acceptance through performance of its stated conditions.
Offer vs Invitation to Offer: Easy Example
Consider a supermarket.
The supermarket displays a packet of biscuits with a price tag of ₹50.
The displayed price does not ordinarily mean:
“I hereby make a legal offer to sell this product to every person who picks it up.”
Instead, the display ordinarily invites customers to make an offer to buy. The sale is completed when the transaction is accepted according to the applicable rules and circumstances.
This distinction protects the difference between:
Invitation to Offer → Customer’s Offer → Acceptance → Contract
Quick Revision Notes
Meaning
Section 2(a): Proposal is the signification of willingness to do or abstain from doing something with a view to obtaining the assent of another.
Essentials of Offer
- There must be an offeror and offeree.
- The offer must be communicated.
- It must show an intention to obtain assent.
- Its terms should be sufficiently certain.
- It should be capable of creating legal relations.
- It may involve doing or abstaining from doing something.
- A mere statement of intention is not necessarily an offer.
- A joke or casual statement ordinarily does not constitute an offer.
- Silence cannot ordinarily be imposed as acceptance.
Kinds of Offer
Express → By words
Implied → By conduct or circumstances
Specific → To a particular person or group
General → To the public or a class
Cross → Identical offers made independently
Counter → Modified or qualified response to an offer
Standing/Open/Continuing → Offer remaining open for a period
Offer vs Invitation to Offer
Offer → Capable of acceptance and formation of promise
Invitation to Offer → Invites others to make offers
Lapse of Offer
An offer may come to an end through:
- Revocation;
- Expiry of prescribed or reasonable time;
- Failure of a condition precedent;
- Death or insanity of the proposer where the statutory requirement of knowledge is satisfied;
- Counter-offer;
- Rejection;
- Other circumstances recognized by law, including subsequent illegality or impossibility.
Conclusion
An offer or proposal is the foundation of the contractual process. Section 2(a) of the Indian Contract Act, 1872 requires a person to signify his willingness to do or abstain from doing something with a view to obtaining the assent of another.
For an offer to have legal significance, it must be sufficiently clear, communicated, intended to create legal relations, and capable of acceptance.
The law also distinguishes an offer from an invitation to offer. This distinction is particularly important in advertisements, auctions, tenders, price displays and commercial transactions.
Once an offer is made, the rules relating to acceptance, communication, counter-offers, cross-offers, revocation and lapse determine whether and when a contractual relationship can arise.
The central principle can be remembered as:
Offer + Valid Acceptance = Promise
and ultimately, when all other legal requirements are satisfied:
Agreement + Enforceability by Law = Contract