A proposal is one of the essentials of a valid contract. This article focuses primarily on proposal as prescribed in the Indian Contract Act,1872 and it also lays emphasis on a few important topics under proposal with the help of well explained examples from English law.
A Contract is an agreement between two or more persons to achieve a particular purpose while specifying the rights and duties between each party. A contract emerges from an agreement since it is an agreement which is legally binding in nature whose terms can be enforced and upheld by the courts. Whereas an agreement is wider than a contract since it is a less formal creation of an obligation between parties.
A contract has 4 main essentials that need to be fulfilled without which it won’t be recognized as a contract.
These essentials are:
- Legal enforceability
Offer / Proposal
According to Section 2(a) of the Indian Contract Act 1872,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 making the proposal is called the Promisor / Offeror and the person to whom the proposal is being made is called the Promisee / Offeree. When the person to whom the proposal is being made accepts the proposal then it becomes a promise.
The essentials of a valid offer constitute the following:
- An offer must be made with an intention to create legal obligations.
- An offer may be express or implied.
- The terms of the offer must be definite and not vague
- An offer cant prescribe silence as a mode of acceptance
- A general offer need not be specifically accepted
- An offer differs from an invitation to offer
- Offer must be communication.
Communication of offer
According to Section 4 of the Indian Contract Act, 1872 the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
The communication of an acceptance of a proposal as against the proposer is complete when it is put in a course of transmission to him so that it is out of the power of the acceptor whereas the communication of an acceptance of a proposal as against the acceptor is complete when it comes to the knowledge of the proposer.
In the Household Fire Insurance Co. V. Grant case, the court ruled that when an offer is properly accepted by means of a letter or any acceptable way of communication, the acceptance is complete and a binding contract comes into force as soon as the letter is posted, even though the letter is lost in the post and never reaches the offeror.
In Entorse Ltd. V. Miles Far East Corporation case, the plaintiff was a company in London that made an offer to the defendant, an American company by telex to sell a certain quantity of meat and the defendants company accepted the offer by telex itself. The question that arose was where the contract come into place and in case of any disputes which court would have jurisdiction over the matter. It was decided that the contract was completed in London since a contract is deemed to be made at the place where the acceptance is received i.e. at the place of the offeror.
Revocation of offer
According to Section 5 of the Indian Contract Act, 1872 a proposal may be revoked at any time before the communication of acceptance is complete as against the proposer, but not afterwards. This implies that the communication of revocation of offer can be effective only when the revocation reaches the offeree before he posts his acceptance and makes it out of his power.
In Henthorn V. Fraser, the appellant was called at the office of a building society in Liverpool to discuss the purchase of certain houses from the society. The society gave him the option to purchase for fourteen days at 750 Euros. The next day, the society posted a letter withdrawing the offer between 12 and 1 pm. The letter of withdrawal did not reach the appellant until after 5pm the same day meanwhile the appellant has posted his letter of acceptance at around 4pm that day. The letter of acceptance was opened by the secretary in the society office the following day since the letter of acceptance had reached after the office had closed for the day. It was held that the contract was valid since the acceptance was out of the control of the appellant at 4pm and she had not received the letter of revocation before that.
A proposal can be revoked in the following situations:
A proposal can be revoked by communication of notice of revocation by the proposer to the proposee.
A proposal can be revoked if the time prescribed in the proposal has lapsed or if no time is prescribed in the offer then the proposal will lapse after the passage of a reasonable period of time.
When the proposer dies or becomes insane and if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.
A proposal can be revoked if the acceptor fails to fulfill a condition precedent to the acceptance of the proposal.
The types of offers are as follows:
A general offer is an offer that is made to the public at large and places no restrictions on the type of people accepting the offer. A case of general offer would be the Harbhajan Lal V. Harcharan Lal case, in which the defendants son had run away from his home and the defendant sent out a notice which read that anyone who found his son would be rewarded Rs. 500. The plaintiff found the missing son at a railway station and informed the defendant. The plaintiff had received the reward since the notice sent out by the defendant was a general offer and could be accepted by anyone.
A specific offer is an offer that is made to certain specific people and places restrictions on the type of people who can accept the offer. For example X offers to buy car from Y for Rs. 10 lakh. This offer is a specific offer which has been made to a definite person Y and no person other than Y can accept this offer. In the case of Boulton V. Jones, the defendant used to have dealings with Brockle Hurst and he sent an order to Hurst for the purchase of certain goods but by the time the offer reached Hurst, he had already sold his business to Boulton. Boulton received the order and send the items to Jones without informing him of the change of hands in the business. When Jones heard of the change in hands of business, he refused to pay Boulton for the items purchased because he said that it was his intention to enter into a contract with Hurst and not Boulton. Hence it was held that since Jones made a specific offer to Hurst he won’t be liable to pay Boulton.
A counter offer is said to exist when the offeree does not accept the original contract but the offeree is willing to accept the offer after making some changes in the form of additions or deletions from the original contract. In such a situation the original offer gets rejected and it cannot be revived at a later time. In such situations, the offeree becomes the new offeror and the offeror becomes the new offeree. A counteroffer can only be accepted/ rejected by the party who offered the initial offer and only if that party accepts the counteroffer, a contract is established. In the case of Hyde V. Wrench, he defendant, offered to sell the farm he owned to the plaintiff for £1,200, but this was declined by Mr. Hyde. The defendant then decided to make another offer to sell the farm to him for £1,000 and he also made it clear that this would be his final offer regarding the property. In response, Mr. Hyde offered £950 for the farm in his letter which was refused by Mr. Wrench. Thereafter Mr. Hyde agreed to buy the farm for £1,000, which was the sum that had previously been offered. However, Mr. Wrench refused to sell his farm because once Mr. Hyde rejected the offer he placed a counter offer which was not accepted by the defendant and hence that counter offer rendered the previous offer invalid.
A cross offer is said to exist when two parties make the exact same offer to each other at the exact same time. This type of offer doesn’t usually exist in the real world since such an offer is based purely on chance. In this situation, there won’t be a contract because it cannot be interpreted that one party’s offer is accepted by the other party.
An offer can be called 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. It is also called an open or continuing offer. In Ramsgate Victoria Hotel Company V. Montefeire case, on 8th June M offered to take shares in company R and he had received his letter of allotment on 23rd November. M refused to take shares since M was entitled to refuse as the offer was not a standing offer and the period of 5 months was not a reasonable one.