Law of Contract – Proposal

 

PROPOSAL

The word ‘proposal’ or‘offer’ meansto give option to someone to agree or deny. In terms of Contracts, a person is said to make a proposal when he signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence. From this definition, one can make out following ingredients of a Proposal –

1. It is an expressions of willingness

2. To do or to abstain from doing an act, that is, it may be for doing an act or making an omission

3. Expressed with a view to obtain the assent of the other party to whom the offer is made.

For example –

1. “A” offers to sell his car to “B”. This is proposal as it conveys A’s willingness to do an act and also solicits B’s assent.

2. “A” offers to “B” to omit bidding at an auction event, where B intends to bid, for payment of a sum. This is proposal.

3. Where “A” says to “B” that he intends to marry B by the end of the year. This is no offer, unless, he also asks “Will you marry me?”

Classification of Proposal/Offer

Offer can be classified as general offer, specific offer, cross offer, counter offer, standing/open/continuing offer.

(a) General offer

It is an offer made to public at large. Until the general offer is retracted or withdrawn, it can be accepted by anyone. Thus, it is continuing is nature. For example, SMS Code to win contestsare general offers. Any person who sends the code inside the packet is actually accepting the general offer. Similarly, where A advertises that he will Rs 500/- to anyone who brings back his lost dog. He makes a general offer. A vending machine at the airport, A bus at the bus stop ready to ply are in their nature general offers.

(b) Special/Specific offer

Where an offer is made to a particular person, it is a specific offer. Only that person can accept such specific offer, as it is exclusive to him.

(c) Cross offer

Cross offers are offers made to each other in ignorance of offer of the other. For example, if A makes a proposal to B to sell his carat a specified price and B, without knowing proposal of A, makes a proposal to purchase the same carat the same price. The offers are cross offers. And one is not acceptance of other.Nor isthere anybinding contract between them by mere exchange of proposals.

(d) Counter offer

Counter offer is an offer made in response to another offer. If,upon receipt of an offer, the offeree instead of accepting it straightway, imposes conditions which have the effect of modifying or varying the offer, he is said to have made a counter offer.

For example, A says to B – “Will you buy my car for Rs. 50,000/-?” And B replies – “I will do it for Rs. 45,000/-.” B is making a counter offer. Counter offers amounts to rejection of the original offer. Thus, B cannot, at a later stage, say that he accepts A’s offer for Rs. 50,000/- and bind him with his proposal.

(e) Standing or continuing or open offer

An offer which is kept open for acceptance for a certain period of time is known as standing or continuing or open offer. For example, A offers to supply coal to B for running thermal power plant for a period of one year at a particular price. This is a continuing offer. And each time an order is placed, the same is acceptance.

Essentials of a Valid Proposal/Offer

An offer must adhere to certain rules to be a valid offer. They are as follows –

1. The ‘offer’ must be with intent to create a legal relationship and not mere social relationship. Thus, an invitation for dinner is not an offer.

2. The offer must be certain and definite. It must not be vague. For example, where ‘A’ offers to sell 100 litres of oil, without indicating what kind of oil would be sold, it is a vague offer and hence cannot create any contractual relationship. If however there is a mechanism to end the vagueness, the offer can be treated as valid. Thus, if in the above example if ‘A’ does not deal in any oil but only in Mustard oil and this is matter of common knowledge, the offer is not vague but a valid offer.

3. It may be express or implied.

4. It must be distinguished from an invitation to offer.

5. The offer must be communicated to the person to whom it is made. This communication may be made by act or omission by which the person intends to communicate, or which has the effect of communicating it. An un-communicated offer cannot be accepted. So, if A writes a letter offering to sell his house for a price to B and keeps the letter in his desk drawer. A does not make an offer since he has not posted the letter.

6. The offer must be made with a view to obtain the assent of the promisee.

7. An offer may be conditional. But burden to refute cannot be placed on the promisee. That is, the promisor cannot say that if non-acceptance is not communicated by a certain time the offer would be treated as accepted.

Invitation to Offer

An offer must be distinguished from a mere invitation to offer. An offer is definite andexpresses willingness with a view to obtain assent and if assent is given thereto, the contract is concluded.

An invitation to offer is an act precedent to making an offer. An invitation to offeris – “…an expression of willingness to negotiate. A person making an invitation to treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed.”

An invitation to offer gives rise to an offer after due negotiation and it cannot be per se accepted. In an invitation to offer there is no expression of willingness by the offeror to be bound by his offer. It is only a proposal of certain terms on which he is willing to negotiate. It is not capable of being accepted as it is.

The essence of an invitation to offer is that the offer is actually made by the seller. For example, An advertisement in newspaper. The reason is that it does not make business sense for advertisements to be offers, as the person making the advertisement may find himself in a situation where he would be contractually obliged to sell more goods than he actually owned.

Similarly, a display of clothes in a shop, of goods in an auction, and even advertisements screaming “Offer! 50% Off on All Shirts!” is actually an invitation to treat, and not an offer.

Therefore, an invitation to offer ‘evolves’ into a contract in a different manner than an offer. Initially, it is an invitation to offer, say by a display of goods and their prices. When a person makes an offer that is good enough and the seller ‘accepts’ it, it becomes a contract.

The test to decide whether a statement is an ‘offer’ or ‘invitation to offer’ is to see the ‘intention’. If a person who makes the statement has the intention to be bound by it as soon as the other accepts, he is making an offer. If he however intends to do some other act, he is making only an invitation to offer.

Where the owner of the property had said that he would not accept less than Rs.6000/- for it. The statement doesnot indicate any offer but only an invitation to offer. Similarly, in an auction, goods put up for auction are invitation while the bids are offer. Somekey examples of Invitation to offer are –

• Menu card of a restaurant showing the prices of food items.

• Railway Chart setting out train timings and fares.

• Government Tender

• An invitation by a company to the public to subscribe for its shares.

• Recruitment advertisement inviting application.

• Quotation of prices sent in reply to a query regarding price.