Essentials of a Proposal/Offer

The Indian Contract Act, 1872 defines Proposal under Section 2(a) as follows:-

(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;”1

The terms proposal and offer are usually used interchangeably. The person to whom
the offer is made is called the offeree or promisee. The person making the proposal or
offer is called the offeror or promisor.

Under this statutory definition, the essential elements of a proper proposal are :-

(i) There must be two or more parties. One cannot make an offer to himself.
(ii) It should express the willingness to do or abstain from doing something. But mere
expression of willingness to do something will not constitute an offer. For
example: - A says that he wishes to buy B’s house after 2 months. It will not be
considered as a valid offer. This is where the second essential element mentioned
comes in.
(iii) It should be made with a view or rather an expectation of obtaining the assent of
the offeree to the specified proposal. In the same example, if A asks B if he would
sell his house to him after 2 months, that would constitute a valid offer as it was
made to obtain the assent of B to the offer.

Other essentials of a proper proposal/offer which are mentioned in other sections and
identified via case laws are:-

 An offer must be certain, definite and not vague or ambiguous.

For example, A offers to buy fruits from B but does not specify which fruits. This
offer is vague and thus not valid.

 An offer may involve a positive act or abstinence by the offeree.

1
Indian Contract Act, 1872

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 The word ‘signifies’ in the definition talks about an indication or declaration to make
the contract. The same is talked about in Section 3 of the Act which says “The
communication of proposals, the acceptance of proposals, and the revocation of proposals
and acceptances, respectively, are deemed to be made by any act or omission of the party
proposing, accepting or revoking by which he intends to communicate such proposal,
acceptance or revocation, or which has the effect of communicating it.”1

 The offer must be communicated to the offeree.

A case law illustrating the point is Lalman Shukla v. Gauri Datt.2 Gauri Datt’s
nephew absconded and she announced a reward for him. Lalman Shukla, who was her
servant found him and brought him back with no knowledge of the reward. Sometime later,
he found out and claimed the reward money. Gauri denied him the money and he filed a suit.
The case was ruled in Gauri’s favour as the court held that knowledge of the offer at the time
of accepting it and performing an action is necessary.

 An offer can be express or implied.

Section 9 further talks about two forms of communication. It says “In so far as the
proposal or acceptance of any promise is made in words, the promise is said to be express. In
so far as such proposal or acceptance is made otherwise than in words, the promise is said to
be implied.”1 The Act therefore talks about an act or omission which conveys the
communication of an acceptance, proposal or revocation which can be done through words,
either spoken or written and can also be done through conduct.

Implied offers cover a very broad range of methods through which an offer can be
accepted. It can be through conduct of the parties or from specific circumstances of the case.
Implied offers can be further understood through case laws. An illustration is Upton-on-
Severn R DC v Powell.3 Another simple example of this is taking goods to a cash desk in a
supermarket which is an implied offer to buy those goods. Even a bid at an auction is an
implied offer.

 An offer can be general or specific.

A specific offer is made to a particular person and can only be accepted by that person. A
general offer is made to the public i.e. the world at large an can be accepted by anyone. The

2
Lalman Shukla v. Gauri Datt (1913) All LJ 489
3
Upton-on- Severn R DC v Powell, (1942) 1 All ER 220 (CA).

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case law of Lalman Shukla v Gauri Datt2 illustrates this concept. Another case law is of
Carlill v Carbolic Smoke Ball Co.4 In this illustration, the manufacturer promised to pay £100
to anyone who suffered the epidemic influenza or any other cold-related condition after using
the ball. It also said that they had deposited £1000 with a bank as proof of their sincerity. The
plaintiff used the smoke ball and caught influenza. She was held entitled to recover the
reward money as the offer was made to the public at large and anyone could have accepted it.

 An offer must be distinguished from an invitation to offer.

An invitation to offer does not express willingness to contract but only puts forward certain
terms on which the party is willing to negotiate. The party instead invites the other party to
make an offer. A simple example of an invitation to offer is the display of goods in a shop. A
customer can only offer to buy the goods but cannot enforce a contract directly. It is upto the
shopkeeper whether to sell the goods or not. The Act does not talk about invitation to offer
and so the distinction between them both has been brought forward by case laws. One such
case which was decided by the Supreme Court is McPherson v M.N. Appanna.5

Essentials of Acceptance

4
Carlill v Carbolic Smoke Ball Co, (1893) 1 QB 256 (CA)
5
McPherson v M.N. Appanna (1951) SCR 161

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The Indian Contract Act, 1872 defines Acceptance under Section 2(b) as follows:-

(b) “When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted, becomes a promise;”1

Under the statutory definition, essential elements of Acceptance are as follows:-

(i) The offeror is the one who can accept the offer. It should not be by a second person.
Acceptance communicated by a second person is not considered valid. A case law
illustrating this is Powell v Lee.6
(ii) A promise is formed when the acceptance is communicated by the offer. These
promises are binding on both the parties.

Other essentials of acceptance which are mentioned in other sections and identified via case
laws are:-

 Assent to the offer must be signified. It means that the communication of the
acceptance must be complete. It could be through an act or omission. (Section 3)

The essence of communication of acceptance is that there should be a conspicuous act

which conveys it. A mental manifestation or thought without an actual act will not hold any
importance. Now that Act may be through words or conduct. A very simple example of the
same is the fall of the hammer in an auction sale. A case law which talks about acceptance
implied through conduct is Brogden v Metropolitan Railway Co 7.

 Acceptance must be communicated to the offeror himself and not to any other
person.

Communicating to any other person other than the offeror does not constitute a valid
contract. This has been illustrated in the case law of Felthouse v Bindley.8

 Acceptance must be absolute and unqualified which is specified in Section 7(a) of

the Act.

An offer must be accepted on its original terms. The acceptance should not
modify/remove any terms of the original offer. If it does so it turns into a counter offer. A

6
Powell v Lee, (1908) 24 LTR 606
7
Brogden v Metropolitan Railway Co, (1877) LR 2 AC 666 (HL)
8
Felthouse v Bindley, (1863) 7 LT 835

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contract will only be formed if the original offeror now accepts the new offer. An offer
cannot be accepted partly either.

 Acceptance can be either express or implied (just like an offer) as mentioned in

Section 9 of the Act. It can be implied through the conduct of the parties.

Section 8 talks about acceptance by performing conditions or receiving

considerations. It says “Performance of the conditions of a proposal, or the acceptance of any
consideration for a reciprocal promise which may be offered with a proposal, is an
acceptance of the proposal.” An example of acceptance by conduct is an action in terms of
the offer. This can be illustrated through the case law of Hindustan Coop Insurance Society v
Shyam Sunder. 9

In some cases, however, communication of acceptance is not necessary. Just doing an

action which is specified in the offer is enough. This can be illustrated through the example
of a general offer. General offers usually demand some action in return for the promise to
pay. A case law illustrating this concept is Carill v Carbolic Smoke Ball Co4. The plaintiff
acted on the terms mentioned in the offer which meant that she accepted it. It didn’t matter if
the company was aware of the acceptance at that particular moment when the contract was
formed.

 Mere silence does not amount to acceptance.

For example, A says to B that he wishes to purchase J’s penthouse at 10k rupees. If J
does not reply to his offer within two days then he will assume that J has accepted his offer. If
J does not end up responding this will still not constitute a valid contract as acceptance was
never actually signified by J. Silence can never be considered equivalent to acceptance. A
case law illustrating this point is Felthouse v Bindley.10

 Acceptance must be expressed in some usual and reasonable manner unless the
offer specifies a particular mode of acceptance.

If no mode of acceptance is prescribed then the acceptance must be expressed in a

usual and reasonable manner. However, it is upon the offeree to ensure that the method of
acceptance is efficient and will be clearly understood by the offeror.

9
Hindustan Coop Insurance Society v Shyam Sunder, AIR 1952 Cal 691
10
Felthouse v Bindley, (1863) 7 LT 835

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 If there is a prescribed mode of acceptance, then it must be followed. However, a
deviation won’t invalidate the acceptance completely. The duty is then shifted onto the
offeror to reject such acceptance within a reasonable time period.

 The acceptance should be communicated within a prescribed time.

The offeree must react to the offer within the time restriction specified in the offer, or
within a reasonable period before the offer lapses or the offer is withdrawn by the offeror if
no time limit is specified. An example is, A offers to sell his plot to J in March. J responds in
December. A can now refuse to sell the plot since a reasonable time period has passed.

Intention to create a legal relationship

An important essential for an offer and acceptance to be valid and to form a legally
enforceable agreement is the intention of creating a legal relationship. However, this has not
been mentioned in any provision of the Indian Contract Act, 1872. There are however, case
laws justifying the application of this essential principle. One famous case illustrating this
principle if Balfour v Balfour.11 Mr. Balfour’s appeal was granted on the grounds that the
agreement between the couple was not a legally enforceable agreement and thus, did not
constitute a valid contract. It was merely a domestic agreement between a husband and wife
with no intention to create a legal relationship or face legal consequences.

“In the case of arrangements regulating social relations it follows as a matter of course that
the parties do not intend legal consequences to follow. In the case of agreements regulating
business relations it equally follows almost as a matter of course that the parties intend legal
consequences to follow.”12

This is however not always the case and the assumptions will change according to the
circumstances of the case. McGregor vs McGregor is an example of a case which involved a
couple but in which the husband promised to pay his wife an allowance and the wife in return
refrained from pledging his credit. This agreement was classified as a contract due to the
presence of an intention to create a legal relationship.13
11
Balfour V Balfour [1919] 2 KB 571

12
Per Bankes LJ at p. 282 in Rose & Frank Co v J.R. Crompton & Bros Ltd, (1923) 2 KB 261 (CA).
13
Mcgregor v. Mcgregor., [L.R.] 21 Q.B.D. 424

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Thus, a legally binding contract can be formed in a variety of cases and even when there is no
law which talks about in the Indian Contract Act there are many case laws regarding the
principle. The Supreme Court of India has also given recognition to this essential principle
via various case laws. One such case law is CWT v Abdul Hussain Mulla Muhammad Ali.14

Limitations of Section 2(a) and 2(b)

The statutory definitions given under Section 2(a) and 2(b) are thus not clear on various
aspects of an offer and acceptance. The meanings of certain words and phrases need to be
explained in a better manner. For example: - “Signifies” – The communication of an offer
and acceptance can be done through a lot of methods. The Section needs to be clearer on the
mode used, timings within which to send the offer, acceptance and also if it can be rescinded
once sent. There is a need to add rules which specify when the communication is accepted
and when can it be rescinded. Revocation of an Offer is an extremely crucial element which
the clause misses out on. There should be further clarification on who is bound and when
against the other party when using a specific mode to communicate. Further, there is no
mention about counter offers and cross offers either. It is however, crucial to explain these as
they nullify an offer.

References

Indian Contract Act, 1872

Avtar Singh., 2008. Law of contract (a study of the Contract Act, 1872) and specific
relief (10th ed.) (Lucknow: Eastern Book Co..)

Mary Charman, Contract Law (4th ed. ) (Willian Publishing 2007)

Catherine Elliott & Frances Quinn, Contract Law (7th ed.) (Pearson Education Limited 2009)

The Institute of Chartered Accountants of India, Mercantile Laws (The Publication

Department on behalf of ICAI 2014)

14
CWT v Abdul Hussain Mulla Muhammad Ali, (1988), 3 SCC 562 at p. 569

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