From insurance plans to job contracts, contracts play an important role in our daily lives. Indeed, we enter into contracts without even thinking about it, such as when purchasing a movie ticket or installing an app. A contract is a legally binding agreement between two or more parties, whether oral or written. Individuals, businesses, non-profits, and government agencies may all be parties to a contract.
According to Section 2(h) of the Indian Contract Act 1872, An agreement enforceable by law is a contract.
A contract is a legally binding agreement. Thus for the formation of a contract there must be – (1) an agreement and – (2) the agreement should be enforceable by law.
According to Section 2(e) of the Indian Contract Act 1872, Every promise and every set of promises, forming the consideration for each other, is an agreement.
According to Section 2(b), A proposal, when accepted, becomes a promise.
According to Section 2(a),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 process of definitions comes down to this: A contract is an agreement, an agreement is a promise and a promise is an accepted proposal.
Thus, we can say that the very first step of any contract is an offer/proposal. The entire process of entering into a contract begins with one party making an offer, which is accepted by the other, and a consideration exchange (something of value). Proposal is one of the essentials of a valid contract. In this project, we will focus on the term proposal and its relevant provisions in the Indian Contract Act 1872.
According to the Indian Contract Act 1872, proposal is defined in Section 2 (a) as “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 person who makes the proposal is known as the “proposer/offerer” and the person to whom it is made is called the “proposee/offeree.”
When the proposal is accepted it becomes a promise. So, according to Section 2(c) of Indian Contract Act 1872, the person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee.”
ESSENTIALS FOR A VALID PROPOSAL/OFFER
- An offer must be made with an intention to create legal obligation
An offer requires an intention to create legal relationship. There must be a common intention of the parties to enter into a legal obligation.
In the case of Balfour V. Balfour, 2 K.B. 571 (1919), the husband and wife were living together and later on the husband moved to Ceylon for work and wife had to remain in England because of her health. The husband agreed to send her wife 30 pounds as maintenance. He did send for sometime but later he stopped sending and the wife filed a case against the husband. In this case it was held, the wife cannot recover the arrears as because there was no contract between the wife and husband. The intention of legal obligation was not there between the parties. And also it was ruled that the arrangements between husband and wife are not contracts because these parties did not intend that they shall be attended by legal consequence.
In the family and social contracts, the parties do not intend legal consequences to follow so they are not considered as a valid offer but this is not the case always.
The intention of the parties can be ascertained from the term of the agreement and the surrounding circumstances. It is for the court in each case to find out whether the parties intended to enter into legal obligations or not. A test is conducted to know the contractual intention of the parties. The test is objective and not subjective. What is in the mind of the parties is not what is taken into consideration, but what a reasonable person would think in the circumstances their intention to be.
- Offer must be certain and definite
The terms of the proposal/offer should not be vague. They should be clear and understandable by both the parties. A proposal must state the essential term of performance by both the parties.
For example: if ‘C’ has two cars and ‘C’ made an agreement to sell his car to ‘B’ for 3 lakhs. This offer is vague and not definite as because it is not mentioned which car ‘C’ wants to sell. B can think of other car and C of other.
Another example, ‘P’ buys a horse from ‘Q’ and says that if this proves lucky, he will buy another. This again is not valid as because it is based on a condition which is not certain.
For a contract to be legally binding, the terms and conditions must be definite and there must be Consensus ad idem i.e meeting of minds. The parties should agree on the same thing in the same sense.
- An offer may be express or implied
An offer can be both expressed or implied. Secction 3 of the Indian contract act 1872 says that an express offer is the one which is in words, either spoken or written by the offeror.
Section 9 of the Indian contract act says that an implied offer is the one which is done by any act or conduct of the offeror.
A bid at an auction is an implied offer to buy. Similarly consuming food at a restaurant or entering into bus, both creates implied promises to pay for the benefits taken.
In the case of Uptron Rural District Council V. Powell, 1 All ER 220(1942), A fire broke out at defendant’s farm, so he called for the Upton fire brigade as he thought he is allowed to free services. The farm of the defendant was out of the free service zone so the plaintiff claimed for the payment of the services. The court held that the defendant asked for the services and the plaintiff provided it and the services were provided on an implied promise to pay for them.
- An offer must be communicated to the offeree
The word ‘signify’ in the definition of the proposal means ‘to declare or to indicate’. According to Section 4 of the Indian Contract act, the communication of an offer/proposal is complete when it comes to the knowledge of the person to whom it is made. The offeror is required to communicate the proposal to the other party. The process of proposal is complete when it is communicated to the offeree. For any offer to be accepted, the offeree should know about the offer. Acceptance in ignorance of the proposal does not amount to acceptance.
In the case of Lalman Shukla V. Gauri Dutt ,11 All LJ 489(1913), The nephew of the defendant absconded and the defendants sent his servants to search for the boy. The plaintiff, one of the defendant’s servants was sent to Haridwar, when the defendant advertised for a reward of Rs. 501 for anyone who finds the boy. The plaintiff found the boy but he did not know about the reward and thereafter he continued working for the defendant until he was dismissed and then filed a suit claiming the reward. The courts held that the plaintiff was not entitled to the reward since he did not know of the offer.
- Offer can be conditional
The offer/proposal can be conditional but the acceptance cannot be conditional. The offeror can make the terms and conditions of an offer according to him. The offeror can frame them according to his desire.
For example: B offers to sell goods to C only if C makes half the payment in advance. Now, it is upto C, either he can accept the offer or can make a counter offer.
- An offer cannot prescribe silence as a mode of acceptance
When the offeree has accepted an offer then he is required to communicate it to the offeror. Silence is not accepted as a mode of acceptance of any offer. Communication of acceptance of an offer can be expressed as well as implied depending on the type of offer.
In the case of Felthouse V. Bindley, 142 All ER 1037(1862), A person made an offer to his nephew to buy his horse and said that if the offer was not accepted by a certain date, the offer would be assumed to be accepted. The nephew did not respond to the offer, but he did tell his auctioneer not to sell the horse, which the auctioneer did by mistake, prompting the uncle to sue the auctioneer. The court determined that there was no agreement between the nephew and his uncle about the horse’s sale as there was no acceptance of the offer from the defendant and silence cannot be taken as acceptance of any offer.
- An offer differs from an invitation to offer
An invitation to offer and offer are different. An offer is the offeror’s final gesture of willingness to be bound by his offer if the other party accepts it. An offer does not call for any negotiation and it is the final contract in terms of the offeror and the only thing waited for is the assent of the other party. On the other hand, invitation to offer is offers for negotiation. They are offers to receive offers. When a person proposes certain terms on which he is willing to negotiate, he does not make an offer, but only invites other party to make an offer on those term. Advertisement, Catalogues and Display of goods, auction of goods, tender etc. are some of the types of invitation to offer.
In the case of Harvey v Facey,AC 552(1893), the plaintiff telegraphed to the defendants, writing “will you sell us Bumper hall pen? Telegraph lowest cash price”. The defendants replied, also by telegram: “Lowest price for Bumper hall, 900pounds”.
The plaintiff replied immediately saying that they accept to buy them at 900 pounds asked by them. The defendants refused to sell. The plaintiff sued them. The lordship held that the defendant is not bound to sell the pens at that price because they did not offer them, they just answered the plaintiff’s questions. There was no willingness from the defendant to sell.
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