Offer vs Invitation to Offer, and the Lapse and Revocation of an Offer: Display of Goods, Advertisements, Auctions, Tenders, Reward Offers and Sections 5 and 6 of the Indian Contract Act, 1872

Two questions dominate the practical law of offers, and neither is answered by Section 2(a) alone. The first is whether a given communication is a proposal at all or merely an invitation to make one, which decides who is the offeror and therefore who is free to withdraw. The second is how long an offer remains capable of acceptance and how it can be brought to an end, which Sections 5 and 6 answer in a way that differs materially from English law. This topic takes the standard commercial situations in turn and then works through the six ways in which an offer comes to an end.

1. Offer and Invitation to Offer Distinguished

An invitation to offer, also called an invitation to treat, is a communication inviting others to make proposals. It is a step in negotiation and cannot be accepted, because there is nothing in it to accept. The party issuing it becomes the offeree when a proposal is made in response, and is then free to accept or refuse. The distinction is one of intention, tested objectively: did the party signify a willingness to be bound on acceptance, or merely a willingness to receive offers?

1.1 Display of goods

1.2 Price lists, catalogues, prospectuses and timetables

The same reasoning applies to a price list or catalogue, which announces the terms on which the trader is prepared to entertain orders but does not commit him to supply anyone who responds. A commercial reason supports the rule: a trader with limited stock would otherwise be in breach the moment orders exceeded supply. A company prospectus inviting subscription for shares is likewise an invitation, the application for shares being the offer and the allotment the acceptance. A railway timetable is a statement of intended service rather than a promise to run a particular train, though once a ticket is issued a contract of carriage exists on the carrier's usual terms.

1.3 Advertisements

An advertisement is ordinarily an invitation to offer, for the same reason as a catalogue. It becomes an offer where its language shows an intention to be bound on performance rather than an intention to receive proposals. The distinction is between an advertisement offering goods for sale, which invites offers, and an advertisement promising a sum of money to anyone who does a specified act, which is a general offer accepted by performance. The reward cases and Carlill v. Carbolic Smoke Ball Co. fall on the second side of the line, the deposit of money in that case being treated as evidence of an intention to be bound.

1.4 Auction sales

An advertisement that an auction will be held is an invitation, and a person who travels to the sale has no claim if the auction is cancelled or the lot withdrawn, as was decided in Harris v. Nickerson, (1873) LR 8 QB 286. At the auction itself the auctioneer's request for bids is an invitation, each bid is an offer, and acceptance takes place on the fall of the hammer. It follows, as held in Payne v. Cave, (1789) 3 TR 148, that a bidder may withdraw his bid at any time before the hammer falls, since until then there has been no acceptance. Where the sale is advertised as being without reserve, the auctioneer's undertaking to sell to the highest bidder may found a separate collateral obligation.

1.5 Tenders

An invitation to tender is an invitation to offer; the tender submitted is the offer; and acceptance of the tender concludes the contract. Where the tender is for the supply of goods as and when required, its acceptance does not by itself create a contract for any quantity. It converts the tender into a standing offer, and each requisition placed under it is a separate acceptance producing a separate contract.

Three settings, the same sequence: invitation, offer, acceptance

2. General Offers, Performance and Knowledge

A general offer is accepted by performing its conditions. Section 8 provides that performance of the conditions of a proposal is an acceptance of the proposal, so no prior communication of acceptance is needed. But performance counts as acceptance only if the person performing knew of the offer, because Section 2(b) requires him to signify assent, and there can be no assent to an unknown proposal.

3. How an Offer Comes to an End

An offer is not perpetual. Six events terminate it, after which it cannot be accepted unless the offeror renews it.

1. Revocation by the offeror, under Section 5.
2. Lapse of the time prescribed, or of a reasonable time where none is prescribed.
3. Failure of a condition precedent to which acceptance was subject.
4. Death or insanity of the offeror, where the fact comes to the knowledge of the offeree before acceptance, under Section 6(4).
5. Rejection by the offeree, whether express or by way of a counter offer.
6. Acceptance otherwise than in the prescribed mode, where the proposer insists on the prescribed mode under the proviso to Section 7.

3.1 Revocation and the Indian rule

Section 5 read with Section 4 produces a rule materially different from the English one. The communication of an acceptance is complete as against the proposer when it is put in a course of transmission so as to be out of the power of the acceptor. A proposal can therefore be revoked only until the acceptor posts his acceptance. The result is that an Indian offeror has a shorter window for revocation than an English offeror, and the acceptor enjoys a corresponding advantage: from the moment he posts, the offeror is bound, while the acceptor himself remains free to revoke until his acceptance reaches the proposer.

Revocation is effective only when communicated. A decision to withdraw, or a notice posted but not yet received, does not revoke the offer.

3.2 Lapse of time

Where the offer prescribes a period, it lapses at its expiry. Where none is prescribed, it lapses after a reasonable time, which is a question of fact turning on the subject matter, the medium used and the state of the market. An offer to sell a commodity subject to rapid price movement lapses quickly; an offer to sell land may remain open for weeks. In Ramsgate Victoria Hotel Co. v. Montefiore, (1866) LR 1 Ex 109, an application for shares made in June was held to have lapsed by the time the company purported to allot them in November.

3.3 Failure of a condition precedent

Section 6(3) provides that a proposal is revoked by the failure of the acceptor to fulfil a condition precedent to acceptance. Where the offeror stipulates that the offer may be accepted only on some condition being satisfied, such as payment of earnest money, furnishing a guarantee or obtaining an approval, an acceptance tendered without fulfilling the condition is ineffective and the offer falls.

3.4 Death or insanity of the offeror

Section 6(4) attaches a knowledge requirement that English law does not. The offer is revoked by the death or insanity of the proposer only if that fact comes to the knowledge of the acceptor before acceptance. An acceptance made in ignorance of the offeror's death is therefore effective, and the resulting contract binds the estate, subject to Section 37, which provides that promises bind the representatives of the promisor unless a contrary intention appears or the contract is one for personal performance. The death or insanity of the offeree terminates the offer in all cases, since a proposal is personal to the person addressed and cannot be accepted by his representatives.

3.5 Rejection and counter offer

An express rejection ends the offer at the moment it is communicated. A counter offer has the same effect, because Section 7 requires an acceptance to be absolute and unqualified, so a reply that varies the terms is a fresh proposal and operates as a rejection of the original. The original offer is destroyed and cannot be revived by a later purported acceptance, which is the rule in Hyde v. Wrench considered in the preceding topic. A mere inquiry or request for information is not a rejection and leaves the offer standing.

4. The Position Stated Shortly

1. An invitation to offer invites proposals and cannot be accepted; the party responding to it is the offeror.
2. Display of goods is an invitation, and the customer makes the offer at the cash desk, per the Boots case.
3. Price lists, catalogues, prospectuses and timetables are invitations; an advertisement promising a sum for a specified act is a general offer.
4. An auction advertisement is an invitation, each bid is an offer, and acceptance occurs on the fall of the hammer, so a bid may be withdrawn until then.
5. A tender for supply as and when required is a standing offer; each order is a separate acceptance, per Union of India v. Maddala Thathiah.
6. Performance of the conditions of a proposal is acceptance under Section 8, but only where the performer knew of the offer, per Lalman Shukla.
7. Section 5 permits revocation only until the acceptance is put in a course of transmission, which gives the Indian offeror a shorter window than the English rule.
8. Revocation is effective on receipt and not on despatch, per Byrne v. Van Tienhoven.
9. An offer lapses on expiry of the prescribed time or, failing that, of a reasonable time, which is a question of fact.
10. Death or insanity of the proposer revokes the offer under Section 6(4) only if known to the acceptor before acceptance; death of the offeree ends it in every case.

5. Related Topics and Provisions