This project deals with the basic concepts of law of contracts, beginning with an offer/proposal, which is essentially a person’s willingness to do or abstain from doing a certain act, and how it varies from the next stage, i.e., a promise, where assent is signified, and then the contract becomes binging on both parties. It touches upon American and Indian definitions, and elucidates how a contract differs from a promise, as well as from an invitation to offer, with landmark judgments on the same. It concludes with various rules regarding consideration, the commonly a transaction of money for goods or services rendered. The whole process of entering into a contract starts with a proposal or an offer made by one party to another. To enter into an agreement such a proposal must be accepted. Let us take a look at the definition and classification of an offer and the essentials of a valid offer. In the Indian Contract Act, 1872, under Section 2 (H) it is said that an agreement enforceable by law is said to be a contract. American Law defines contract in the following manner -A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. Until it has been accepted, a proposition may be withdrawn by the party who makes it; and to be binding, the acceptance must be in the same terms, without any variation.
To constitute a valid contract there must be a lawful offer and a lawful acceptance of that offer. The word “Proposal” and “Offer” are synonymous and are used interchangeably
Section 2(a) defines proposal as follows:
“When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtain the assent of that other to such act or abstinence, he is said to make a proposal.”
The person making the offer is called the “offeror” or the “promissory” and the person to whom it is made is called ‘offeree’. When the offered accepts the offer, he is called the ‘acceptor’ or the ‘promise’.
Offer is an open invitation by the promisor for the acceptance of the terms and conditions of the undertaking, which when accepted by the promisee becomes binding on both parties and the proposal becomes a promise. Hence the difference between an offer (proposal) and a promise lies in acceptance of the offer (proposal).
ESSENTIAL CONDITIONS OF A VALID PROPOSAL
A proposal in order to be a valid one must fulfill the following conditions:
(1) PROPOSAL MUST CONTEMPLATE THE CREATION OF LEGAL RELATIONS:
A proposal can fructify into a promise by acceptance only when it is such that it can be reasonably regarded as having been made with a view to produce legal consequences A mere statement of intention, hope or desire, does not constitute a binding promise, though acted upon by the party to whom it is made. Where there is no intention to enter into a binding contract, or no legal consequences are contemplated, an acceptance of the proposal does not create a promise.
(a)A invites B to dinner and B accepts the invitation. It does not create any legal relations, so there is no agreement.
(b) But if A offers to-sell his watch to B for Rs. 200 and B agrees to buy it at the same price, there is an agreement because here the parties intend to create legal relations
(2) PROPOSAL MUST BE COMMUNICATED:
An offer is effective only when it is communicated to the offeree. If an offer is not communicated to the offeree, it cannot be accepted. An acceptance of offer in ignorance of it, is not valid acceptance according to the law and does not create any legal obligations.
In Lalman Shukla vs. GhauriDutt A’s nephew absconded from home. He sent his servant in search of the boy. Subsequently, A published an advertisement offering to pay Rs. 50 to anybody communicating the whereabouts of the boy. The servant came to know of it only after he had traced the missing boy. He, however, brought an action to recover the reward. But his action failed because in order to constitute an offer there must be its acceptance and there can be no acceptance unless there is knowledge of the offer”.
(3) PROPOSAL MUST SIGNIFY WILLINGNESS OF PROPOSER TO OBTAIN ASSENT TO IT:
A proposal, to be valid, must signify to another person the willingness of the proposer to do, or abstain from doing, anything, with a view to obtain the assent of that other to such an act or abstinence. A unilateral decision to do, or to abstain from doing anything, when the other party has hardly any opportunity to accept or reject the proposal, does not amount to a proposal.
ILLUSTRATION: In the case of Hulas Kunwan v. Allahabad Bank, Ltd., intimated by a circular, sent to its constituents, to increase the rate of interest. It was held, that the circular did not amount to a proposal, as it did not signify; to the constituents the intention to raise the rate of interest with a view to obtain their consent. It was a unilateral decision to enhance the rate of Interest.
(4) PROPOSAL MUST BE MADE WITH A VIEW TO OBTAIN THE ASSENT.
The offer to do or not to do something must be made With a view to obtaining the assent of the other party to whom the offer has been addressed and not merely with a view to disclosing the intention of making an offer.
(5) PROPOSAL MUST CONTAIN A PROMISE:
By the proposal, the person making it expresses his agreement that something shall be done or shall not be done, or shall or shall not happen, if the proposal is accepted. In this sense, a proposal contains a promise. A signification of willingness to do or abstain from doing anything, which does not give, to the person to whom it is made, an assurance that, on some contingency at least, something will or will not be done, does not amount to a proposal.
(6) PROPOSAL MUST BE CERTAIN AND DEFINITE:
To constitute a valid proposal, essential’ that it should sufficiently define “the terms of the proposer’s undertaking, so that it can be ascertained just what is that the proposer has promised. A promise, too vague in its terms to be understood, is too vague to be capable of enforcement. The proposal must define, with the same degree of certainty, the act or promise which the person to whom the proposal is made is to give to the proposer in exchange-A proposal must define the essential terms of performance on both sides with a reasonable degree of certainty, so as to be capable of enforcement.
PROPOSAL BECOMES CONTRACT WHEN –
An offer when accepted gives rise to an agreement. It is at this stage that the agreement is reduced into writing and a formal document is executed on which parties affix their signature or thumb impression so as to be bound by the terms and conditions of the agreement as set out in the document. Such an agreement has to be lawful and we know from the definition of contract of the Indian Contract Act, 1872 that an agreement enforceable by law is a contract. This is how an offer becomes a contract.
In contracts, a promise is essential to a binding legal agreement and is given in exchange for consideration, which is the inducement to enter into a promise. A promise is illusory when the promisor does not bind herself to do anything and, therefore, furnishes no consideration for a valid contract.
For an offer to be accepted there must be an offer and that has to be accepted to make an agreement. Though this might seem self explanatory, but one has to differentiate it from the legal phrase ‘amounts to a valid offer’. The various modes of making an offer are orally, in a written form or by conduct. Irrespective of the mode in which the offer is made, it is the intention or willingness of the offeree which is of paramount importance and that is clearly a subjective issue.
It is important to differentiate at this point between an offer and an “invitation to offer”. Carlill v Carbolic Smoke Ball Co.is an important case which brings out the difference between offer and “invitation to treat.” Parties may enter into preliminary negotiations before entering into a contract.
A general offer is one that is made to the public at large. It is not made any specified parties. So any member of the public can accept the offer and be entitled to the rewards/consideration.
A specific offer, on the other hand, is only made to specific parties, and so only they can accept the said offer or proposal. They are also sometimes known as special offers.
In certain circumstances, two parties can make a cross offer. This means both make an identical offer to each other at the exact same time. However, such a cross offer will not amount to acceptance of the offer in either case.
There may be times when a promise will only accept parts of an offer, and change certain terms of the offer. This will be a qualified acceptance. He will want changes or modifications in the terms of the original offer. This is known as a counteroffer. A counteroffer amounts to a rejection of the original offer.
An offer is regarded as a standing offer if it is meant to remain open for a certain amount of time and can be accepted any time before the deadline. When a company needs a large quantity of products from time to time, it usually invites tenders for the supply of the products through an advertisement. Such a tender or offer is referred to as an open, continuing, or standing tender of offer.
When a party accepts the tender or offer made by the offeror, it does not result in the formation of a legally binding contract until an actual order is placed. It only means that the offer or tender will remain open for a specified amount of time and can lead to a binding contract when the required quantity is ordered. As such, a contract only exists when an order is placed in accordance with the terms and conditions of the offer.
When a standing offer is accepted, it means an order will be placed with the party who submitted tender whenever the products are required, and a distinct contract will be made for each order.
Express and Implied Offers
When an offer is expressly communicated by the offeror, it is regarded as an express offer. The communication of an express offer can be written or verbal. An offer that can be understood by circumstances of case or the conduct of parties is known as an implied offer.
For example, when a bus transport company operates its bus on a certain route, it is making an implied offer to transport passengers to a specified location at a certain fare. Also, a public telephone or weighing machine in a public place offers its service for a certain amount of money. Such a machine is offering an implied offer.
There may be said. To be three basic essentials to the creation of a contract: agreement, contractual intention and consideration. The normal Test for determining whether the parties have reached agreement is to ask whether an offer has been made by one party, if so, whether it bears a contractual intention and is capable of creating legal relations; whether it is certain, unambiguous and definite; whether its purpose is to obtain the assent of the other or is a mere expression of intention to offer; and above all whether it has been communicated duly If the answer to all these propositions is positive, it is a complete and valid offer to all intents and purposes.
BY: Prashant Singh & Swetha