Offer the basis of contracts - Notes for UPSC Law Optional Mains

Updated: Sep 13


LAWXPERTSMV  | OFFER – Basis of Law of Contracts

#Notes that comes handy – Introduction notes

OFFER : An offer is the first step in the formation of a contract. An offer is a proposal by one person to another to enter into a contract.


RELEVANT SECTION : 2(a)

BARE TEXT | ‘When one person signifies to another, his willingness to do or abstain from doing anything with a view to obtaining the assent of the other, to such an act or abstinence, he is said to make a proposal’.

CONCEPT | offer = a proposal made by one person to another to do an act or abstain from doing it.

· The person who makes the offer is known as the promisor or offer or and

· The person to whom an offer is made is known as the promisee or the offeree.


UNILATERAL ACT AS OFFER | Only one person activity is involved

EXAMPLE | If X gifts Y his horse, it is an offer of unilateral acts as Y has to do nothing or pay nothing to X in return of the gifts of X.


BILATERAL ACT AS OFFER | But in case of offers of bilateral acts or requiring actions by two or more persons, then the offeree is supposed to act or respond in a specified manner.

EXAMPLE | Now suppose X offers to sell his horse for Rs. 1000 to Y then here Y also is expected to pay Rs. 1000 to X.


NOTE : It is only the second type of offers about which we are concerend in the Indian Contract Act.

Thus an offer can be analysed into two parts comprising of :-

  • a promise by the offeror + willingness and

  • a request to the offeree for something in return of the offer or seeking acceptance for such willingness.

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DETERMINATION OF AN OFFER (TEST OF AN OFFER)

Every proposal made by an offeror is not legally regarded as an offer. Three tests are applied to determine whether or not an offer has actually been made:

1. Does the offer show a clear intenton on the part of the offeror to be bound by it.

2. Whether the proposal is definite?

3. Whether the offer is communicated to the offeror?

CHARACTERISTIC OF OFFER

CHARACTER 1 | OFFER MUST BE CERTAIN

The offer must have its terms definite and clear | The terms of the offer must be certain, definite and clear. If the terms of the offer are not certain or definite, it is not a valid offer, as it is not clear as to what exactly the parties intend to do.

ILLUSTRATION I- Ram offers to sell to Rahim his gold ring for 1, 00,000 or 1, 50,000. Here Ram’s offer is not certain because it is not clear as to which of the prices is to be paid by Rahim.

ILLUSTRATION II-  Amar who only deals in coconut oil offers to sell to Akbar (a regular customer) 100 tons of oil. Here, the offer cannot be said uncertain on the grounds that it is not clear what price is to be paid for the oil because if such an offer is accepted by Akbar, Akbar has to pay reasonable price or according to the custom of usage of trade.

CURE FOR UNCERTAIN OFFER: According to Sec. 29, if the terms of the offer are capable of being made certain, the offer is not regarded as vague.


CHARACTER 2 | THE OFFER MUST BE CAPABLE OF CREATING A LEGAL RELATIONSHIP

If the offer does not intend to give rise to legal relationship when accepted it is not a valid offer in the eyes of law | The offer must be such that when accepted it will result in a valid contract.

A mere social invitation cannot be regarded as an offer because if such an invitation is accepted, will not result in a valid contract. It is generally contemplated in commercial dealings that the party making a offer is intending to create a legal relationship.

ILLUSTRATION-  Amar invited Akbar to a dinner. Akbar accepted the invitation.

DISCUSSION | This is a social agreement. If Amar fails to serve dinner to Akbar, Akbar cannot go to the court of law for enforcing the agreement. Similarly, if Akbar fails to attend the dinner, Amar cannot go to the court of law for enforcing the agreement.

CHARACTER 3 | THE OFFER MUST BE COMMUNICATED TO THE OTHER PARTY

The offer is completed only when it has been communicated to the offeree|  Until the offer is communicated it cannot be accepted.

Thus, an offer accepted without its knowledge, does not confer any legal rights on the acceptor # Lalman Shukla vs Gauri Datt.

Leading case: Lalman Shukla V. Gauri Dut (1913):

In this case, G’s nephew has absconded. He sent L in search of the missing boy. In his absence, G issued hand bills oferring a reward of Rs, 501/- to anyone who might find out the boy L found out the boy before seeing the hand bills. Later on, he came to know of the reward and sued G for the reward. Here he could not claim the reward as he did not know about the offer.


CHARACTER 4 | MERE STATEMENT OF PRICE NOT OFFER


 If a party makes a statement of price, it cannot be taken as an offer to sell at that price.

CASE LAW | Harvey and Facey, is important to note in this connection.

· A asks B, “Will you sell us Bumper Hall Pen? Telegraph lowest cash price ?

· B replies telegraphically “lowest price for Bumper Hall Pen £ 900”.

· A responds by telegram “We agree to buy Bumper Ball Pen for the sum of £ 900 asked by you”.

 It was held that no contract was concluded between A&B. Because

1. In first telegraph  A has asked two questions first as to willingness to sell and second as to lowest price.

2. The defendant answered only the second and gave only the lowest price.

3. They reserved their answer as to willingness – thus they had made no offer.

4. Only the last telegram of the plaintiff was an offer to buy but was never accepted by the defendant.


PREVIOUS YEAR UPSC QUESTION | YEAR 1994| MARKS 20 | QUESTION 5 b

Explain an offer and quotation and differentiate between two.

Answer line | Define offer – section 2 (a) – signifying willingness to do something/ abstain from doing something + with an intention to get acceptance from other. Quotation – formal statement of estimated cost.

Difference between :

1. Definition

2. Offer step 1 of contract | quotation no contract arise

3. Offer has willingness | quotation no willingness mere price given

4. Offer made to get acceptance | quotation no intention to get acceptance

5. Case laws / example


CHARACTER 5 | OFFER MAY BE GENERAL OR SPECIFIC

An offer may be made to definite person or persons or to the world at large |

MEANING

ü When it is made to some specific person or persons it is called a specific offer.

ü When it is made to the world at large it is called a General offer.


WHO CAN ACCEPT IT ?

ü A specific offer can be accepted only by the person to whom the offer has been made and in the manner, if any specified in the terms of the offer.

ü But a general offer can be accepted by any persons having notice of the offer by doing what is required under the offer.


EXAMPLE | The most obvious example of such an offer is where a reward is publicity offered to any about that object, who will recover a lost object or will give some information, there the party claiming the reward has not to prove anything more than that he has performed the conditions on which the reward was offered.


EXAMPLE | The time table of railways is a general proposal to run trains according to the table, which is accepted by an intending passenger tendering the price of the ticket.


LAND MARK CASE LAW | Carlill V. Carbolic Smoke Ball Co. (1983).

FACTS | In this case, the Company advertised that a reward of £ 100 would be given to any person who contracted influenza after having used the smoke-balls of the Company as directed. Mrs. Carlill used the smoke-balls according to the directions of the company. But contracted influenza.


HELD | It was held, that the offer was a general one, and Mrs. Carlill had accepted it by acting in accordance with the advertisement, and therefore, the company could not get away from its responsibility by saying that they had not meant it seriously. She was entitled to the reward.


INDIAN CASE LAW | In India, the principle was applied in the case of Har Bhajan. Lal V, Han Charan Lal. In this case offer of reward was made to any one tracing a lost boy and bringing him home. Harbhajan Lal - who knew of the reward. Found out the boy and took him to the Police Station. It was held that he was entitled to the reward.


PREVIOUS YEAR UPSC QUESTION | YEAR 2009 | QUESTION 8 B| MARKS 20

Distinguish between the following citing relevant provisions and case law- Specific and general offer

Answer line : Difference given above + cases and example

CHARACTER 6 | OFFER MAY BE EXPRESS OR IMPLIED


EXPRESS OFFER | An offer made by words, spoken or written is termed as an ‘express offer’.

Lx Explains: If A says to B that he is willing to sell him his car for a sum of Rs. 10,000 it is an express offer.


IMPLIED OFFER | ‘Imlied offer’ means an offer made by conduct, an offer may also be implied from the conduct of the parties or the circumstances of the case. This is known as an implied offer.


HOW IT WORKS ? When one person allows the other to perform certain acts under such circumstances that nobody would accept them without consideration it will amount to an offer by conduct and the permission of the party, who is benefitted by such performances, will amount to his acceptance.


Lx Explains: A bus company runs a bus on a particular route. This is an implied offer by the bus company to take any person on the route who is prepared to pay the prescribed fare. The acceptance of the offer is complete as soon as a passenger gets into the bus.

CHARACTER 7 | AN OFFER MUST BE DISTINGUISHED FROM INVITATION TO OFFER

CONCEPT | An invitation to offer is an action inviting other parties to make an offer to form a contract.

WHAT ACTUALLY HAPPENS ? In the case of an invitation to offer the person sending out the invitation does not make an offer but only invites the other party to make an offer.


WHAT IT IS ACTUALLY ? It is a prelude to an offer inviting negotiations or preliminary discussions.

THUS | Such invitations for offers are therefore not offers in the eyes of law and do not become agreements by their acceptance.


EXAMPLE |  Goods displayed in the shop with the price marked on them, an advertisement for sale of goods by auction, catalogues of prices are all examples of invitations to offer.


CASE LAW | Fisher v Bell [1961] 1 QB 394 - the display of a flick knife for sale in a shop did not contravene legislation which prohibited "offering for sale an offensive weapon".

ü If a shop mistakenly displays an item for sale at a very low price it is not obliged to sell it for that amount. 


INVITATION TO OFFER OFFER

The person sending out the invitation When one party (the offeror) makes a definite does not make an offer but only proposal to another party (the offeree) It expresses invites the other party to initial intention It expresses final willingness

make an offer

Example: Issue of prospectus by the Example: Application filled in by prospective

company inviting applications applicants to the Company

CHARACTER 8 | OFFER NUST BE MADE WITH A VIEW TO OBTAIN THE CONSENT:

The offer must be made with a view to obtain the consent of the other party and not merely with a view to disclosing the intention of making an offer. A proposer cannot also dictate terms under which the offer can be refused. At best, he can lay down the mode of acceptance.


CHARACTER 9 | OFFER  SHOULD  NOT  CONTAIN  A  TERM  THAT  NONCOMPLIANCE  OF  WHICH  WOULD  AMOUNT  TO ACCEPTANCE

The offer should not contain a term the non-compliance of which would amount to  acceptance.

EXAMPLE | A person cannot make such an offer that if the acceptance of the offer is not received upto Monday, the offer would be presumed to have been accepted.


CHARACTER 10 | SPECIAL CONDITIONS ATTACHED TO AN OFFER MUST ALSO BE COMMUNICATED

Though an offeror is free to lay down any terms and conditions in his offer, but it is the responsibility of the offeror to bring all the terms of the offer to the notice of the other party.

The acceptor is bound only for those conditions which

(i) have expressly communicated to him or

(ii) have so clearly been written that he ought to have known them or

(iii) have reasonable notice of the existence of those terms.


 NOTE : He will also be bound by the conditions if he knew of their existence, though they are in a language unknown to him. It is his duty to get them explained.


CASE LAW | Henderson V. Stevenson (1875).

FACTS | A passenger had purchased a ticket for a journey. On the back of the ticket, there were certain terms and conditions. One of the terms was that the carrying company was not liable for losses of any kind. But there was nothing on the face of the ticket to draw the attention of the passenger to the terms and conditions on the back of ticket.


HELD : The passenger was not bound by the terms and conditions on the back side of the ticket.

CASE LAW | Thompson V. L. M. & S. Rly. (1930)


FACTS |  T, an illiterate, purchased a railway ticket on the front of which was printed “for conditionsseek back”. One of the conditions was that the railway company would not be liable for personal injuries to the passenger. An accident caused some injuries to T.


HELD | Suit for damages brought by T was dismised as he was bound by the conditions printed on the reverse of the ticket

CONCLUSION | Now it is the established law that wherever on the face of a ticket words to the effect “for conditions see back” are printed, the passenger concerned is bound by the conditions, it is immaterial whether he actually reads them or not.

ü If conditions are printed on the back of the ticket, but there is nothing on the face of it to draw attention of the person to these conditions, he is not bound by the conditions.

ü Thus, it is to be noted that a person, who accepted without objection a document containing terms of the offer, which he knows or ought to have known, will be bound by those terms even if he had not read them.

ü However, this rule will not be applicable if the conditions are so irrelevant for unreasonable that an assent to them cannot reasonably be presumed.

ü Similarly, where a condition to an offer is against public policy, it will not be enforced merely because it has been accepted by the acceptor.

TENDER

A person may invite tenders for the supply of specific goods or services. Thus, a tender, in response to an invitation, is an offer. A tender may be either:

(i)    A definite or single offer, or

(ii)  A standing or an open offer.

TENDER AS A DEFINITE OFFER : If a tender has been submitted for goods or services in specified quantities it is termed as a definite offer, A binding contract comes into existence as soon as the tender is accepted.

Lx Explains:  A invites tenders for the supply of 100 tons of local X, Y and Z submit the tenders. A accepts Y’s tender. There is binding contract between A and Y.

TENDER AS A STANDING OFFER: Standing offer or tender may be of the nature of a continuing offer. Thus, a tender to supply goods as and when required over a certain period amounts to a standing offer. Here, the tenderer must supply whenever an order is placed. But he cannot insist on any order being made at all.

 (a) A tendered to supply goods upto a certain amount to B over a certain period. B’s order did not come upto the amount expected and A sued for breach of contract. Held, each order made was a separate contract and A was bound to execute the orders made. B was under no obligation to make any order at all # Percival Ltd. V.L.C.C. (1918).

(b)   A railway company invited tenders for the supply of certain iron articles over a period of 12 months. W’s tender was accepted. After supplying for sometime, W refused to execute on order placed during the currency of the tender. Held, W could not refuse within the terms of the tender # Great Northern Railway V. Witam

CROSS OFFERS AND COUNTER OFFER

CONCEPT | Identical offers made by two parties in ignorance of each other’s offer, are termed as cross offers. They will not constitute acceptance of one’s offer by the other # Tinn V. Hoffman 1873.


EXAMPLE |  A writes a letter to B offering him his bike for Rs 100. At the same time B writes a letter to making a similar offer to buy his bike for Rs 100. Offers of both A and B cross each other. Such offers do not constitute to acceptance of one's offer by the other.


Counter Offer: On the other hand, in counter offer there is a rejection of the original offer and a new offer is made that needs acceptance by the original promisor before a contract can be made.

EXAMPLE |  X offers Y his bike for Rs 100. Y rejects the offer and offers A to buy his bike for Rs 80. Such an offer is known as the counter offer.


CASE LAW | Hyde vs. Wrench (1840. 3 Beav. 334)

FACTS |. In this case the defendant offered  to sell his estate or £1000 on June 6th on June 8, the Plaintiff made a reply offering to purchase it for £950, it was refused by defendant on June 27. On June 29, the plaintiff wrote that he prepared to pay £1000. The defendant refused.


HELD | Court held  that the plaintiff’s letter expressing his willingness to purchase for £950. It was not an acceptance; it was a counter-offer which terminated the original offer.


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