Offer or Proposal under Section 2(a) of the Indian Contract Act, 1872: Essentials of a Valid Offer and the Kinds of Offer, Including General, Standing, Cross, Counter and Conditional Offers

Every contract begins with a proposal. Section 2(a) defines it, and the definition does more work than its length suggests: it identifies who must act, what must be signified, to whom, and with what purpose. Each of those elements has generated its own body of case law, because the difference between a proposal and something that merely resembles one decides whether a party is bound at all. This topic states the definition, works through the essentials of a valid offer, and then sets out the kinds of offer the courts recognise. The distinction between an offer and an invitation to offer, and the ways in which an offer comes to an end, are treated in the topic that follows.

1. Proposal under Section 2(a)

The Act uses proposal where English law uses offer, and the two are treated as interchangeable in Indian practice. Four elements are embedded in Section 2(a). There must be a signification, so an intention kept to oneself is nothing. It must be made to another, though that other may be an unascertained member of the public. The subject may be an act or an abstinence, so a promise to refrain is as capable of being proposed as a promise to do. And it must be made with a view to obtaining the assent of the other, which is the element that separates a proposal from a statement of intention, a supply of information or an invitation to negotiate.

2. Essentials of a Valid Offer

2.1 It must contemplate legal consequences

An offer must be made with the intention that acceptance will produce a legal relationship. The Act contains no section requiring an intention to create legal relations, and the Supreme Court in Commissioner of Wealth Tax v. Abdul Hussain Mulla Muhammad Ali, (1988) 3 SCC 562 expressed reservation about importing it as a separate ingredient into a system that already insists on consideration. The requirement nevertheless operates through Section 2(a) itself: a communication made in jest, in anger, or as a social or domestic arrangement is not a signification of willingness made with a view to obtaining assent in the legal sense, and there is accordingly no proposal to accept.

2.2 Its terms must be certain and definite

An offer must be capable of being accepted as it stands, without further negotiation on essential points. Section 29 provides that agreements the meaning of which is not certain, or capable of being made certain, are void. An offer to sell 'a hundred tons of oil' where the offeror deals in several kinds of oil is too vague; an offer to sell at 'a price to be agreed' leaves the essential term unsettled. The qualification is important: the terms need not be certain at the moment of offer if they are capable of being made certain by a mechanism the offer itself supplies, such as a market rate on a stated date, a valuation by a named person, or a formula.

2.3 It must be distinguished from a supply of information

2.4 It must be communicated to the offeree

An offer is complete only when it comes to the knowledge of the person to whom it is made. Section 4 provides that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. Two consequences follow. A person cannot accept an offer of which he is unaware, because Section 2(b) requires him to signify assent, and one cannot assent to what one does not know. And an act done in ignorance of an offer, even if it corresponds exactly to what the offer asked for, creates no contract. This is treated further under the heading of knowledge of the offer in the next topic.

2.5 It may contain conditions but not an onerous deemed acceptance

An offeror may prescribe the terms on which his offer may be accepted, including the mode, the time and any conditions to be fulfilled. What he may not do is impose an obligation on the offeree arising from silence. A stipulation that the offeree will be taken to have accepted unless he replies is ineffective, because Section 2(b) requires the offeree to signify assent and the offeror cannot manufacture that signification out of inaction. The same reasoning explains why unsolicited goods sent with a demand for payment impose no liability on the recipient.

3. Kinds of Offer

3.1 Express and implied offers

The distinction follows Section 9. An offer made in words, spoken or written, is express. An offer made otherwise than in words, by conduct or by the circumstances in which a party holds himself out, is implied. A transport undertaking running buses on a route makes a standing implied offer to carry passengers; an automatic vending machine or a parking machine makes an implied offer which the customer accepts by inserting money. The conduct must be such that a reasonable person would understand a willingness to be bound.

3.2 Specific and general offers

A specific offer is addressed to a definite person or to a defined group, and can be accepted only by the person or persons addressed. A general offer is addressed to the world at large and may be accepted by anyone who comes forward and satisfies its terms. There is no conceptual difficulty about an offer to the world, because the contract is made not with the world but with the limited portion of it who perform the condition. Reward advertisements, notices promising a sum to anyone who returns lost property, and promotional promises of the kind considered in Carlill v. Carbolic Smoke Ball Co. are all general offers.

3.3 Standing, open or continuing offers

A standing offer is one which remains open over a period and may be accepted from time to time by placing orders against it. The commonest instance is a tender to supply goods as and when required. Such a tender is not an acceptance of anything; it is a continuing offer, and each order placed under it is a separate acceptance creating a separate contract for the quantity ordered. The party who invited the tender is not bound to place any order at all, unless the invitation itself contained a commitment to a minimum quantity, and the tenderer may in principle revoke the standing offer as to future orders, subject to the terms on which it was given. This is developed further in the next topic in connection with tenders.

3.4 Cross offers

3.5 Counter offers

A counter offer is a reply which purports to accept but introduces new terms, or varies those proposed. Section 7 requires an acceptance to be absolute and unqualified, so a qualified reply is not an acceptance at all. Its legal character is that of a fresh proposal, which the original offeror is free to accept or reject. The consequence of first importance is that a counter offer destroys the original offer, which cannot afterwards be accepted unless the original offeror renews it.

A counter offer must be distinguished from a mere inquiry. A question whether the offeror would consider different terms, or a request for information about delivery or payment, does not reject the offer and leaves it open. The test is whether the reply, fairly read, introduces a new term as a condition of agreement or merely explores the possibility of one.

3.6 Conditional offers

An offer may be made subject to a condition, and acceptance then takes effect only if the condition is satisfied. Three situations should be distinguished. Where the condition is a condition precedent to the offer's operation, such as approval by a board or the grant of a licence, no contract arises until it is fulfilled and the offer lapses if it fails. Where the condition prescribes the mode of acceptance, Section 7 requires the acceptance to be expressed in that manner, though the proviso allows the proposer who receives an acceptance in some other usual manner to insist on the prescribed mode within a reasonable time, failing which he accepts the acceptance as made. And where the condition is a term restricting liability, it binds only if reasonable notice of it was given at or before the time of contracting.

4. The Kinds of Offer Compared

5. The Position Stated Shortly

1. Section 2(a) requires a signification of willingness, made to another, to do or abstain from doing something, with a view to obtaining that other's assent.
2. An offer must contemplate legal consequences, must be certain or capable of being made certain under Section 29, and must be communicated under Section 4.
3. A statement of the lowest price in answer to an inquiry is information, not an offer, per Harvey v. Facey.
4. An offeror may prescribe the mode and conditions of acceptance but cannot make silence amount to acceptance.
5. Section 9 divides offers into express and implied according to whether they are made in words.
6. A general offer may be accepted by anyone who performs its terms, and the contract is made with those who come forward.
7. A tender to supply as required is a standing offer; each order is a separate acceptance forming a separate contract.
8. Cross offers form no contract, per Tinn v. Hoffmann, because neither party assented to the other's proposal.
9. A counter offer is not an acceptance under Section 7 and destroys the original offer, per Hyde v. Wrench; a mere inquiry does not.
10. A conditional offer takes effect only on fulfilment of the condition, and a prescribed mode of acceptance is governed by the proviso to Section 7.

6. Related Topics and Provisions