The proposal under Indian Contract Act

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”.
 Examples
• A company (A) offers to sell its products to another company (B) for a
certain price. The offer is made in writing and sent via email to
company B. This offer is a proposal, and if company B accepts the offer,
it becomes a binding contract.
• A person (A) offers to sell their car to another person (B) for a certain
amount. The offer is made orally during a conversation between the
two parties. This offer is also a proposal, and if person B accepts the
offer, it becomes a binding contract.
• A construction company (A) submits a proposal to a government agency
(B) for building a new bridge. The proposal includes the details of the
project, such as the cost, timeline, and specifications. This proposal is
an offer to enter into a contract with the government agency (B), and if
the agency accepts the proposal, it becomes a binding contract.
 Essentials of a valid offer

• A) An offer must be one to give rise to legal consequences.-To

constitute an offer, offeror must intend to create legal obligation.
Where such intention is lacking, the agreement is not a contract.
Also, where an agreement specifically mentions that it shall not be
subject to legal jurisdiction, there is no contract between the parties.
• Social invitations are examples of offers made without the intention
of creating legal obligations. For example: if A invites B to picnic and
fails to come or if A invites B for a movie show but forgets to come
at the stipulated date or time, in such cases, B cannot claim
compensation for expense and inconvenience as there was no
intention to create a legal obligation. Thus, an agreement to go for a
walk, or an invite for a dinner, cannot be enforced in a court of law.
• Balfour v. Balfour (1919) KB
• In this case, a husband promised to pay 30
pounds to his wife every month. On his failure
to pay the same, the wife sued him for the
recovery of amount. The court held that she
could not recover as the agreement did not
create any legal relationship and there was
never a contract between them.
• Offers made in jest or excitement cannot be
construed as offers as they lack contractual
intention.
• Weeks v. Tybold (1604) , the defendant in the
course of a casual conversation said that he would
give 100 pounds to anyone marrying his daughter
with his consent. Subsequently, he was sued for the
amount , to which the court observed that such
general words spoken to excite the suitors could
not be taken as seriously intended.
 B) The terms of the offer must be definite or capable of being
made definite.-

• A proposal must be definite and specific in its terms, and it should

be communicated to the other party with the intention of
obtaining their acceptance. Once the other party accepts the
proposal, it becomes a promise, and the terms of the contract
bind the parties. However, if the terms of an offer are uncertain, it
cannot be accepted.
• In Taylor v. Portington, 1855, A agreed to take B’s house on rent
for three years at the rent of £85 per annum provided the house
was put into through repair and the drawing rooms were
decorated to present style. Here the expression ‘present style’
was held to be ‘vague’ as ‘present style’ may mean one thing to A
and another to B. the Court observed that when the terms of an
offer are uncertain and vague, the agreement is void.
 C) An offer must be distinguished from an invitation to treat( offer)

• What is an invitation to offer?

• An invitation to offer is a preliminary communication that invites or
encourages someone to make an offer or proposal, rather than being an
actual offer itself. It is an invitation to negotiate or make an offer, which may
or may not result in the formation of a contract. In simple terms, an invitation
to offer is an invitation to commence negotiations or discussions, and it does
not create a legal obligation to accept any resulting offer.
• Examples of an invitation to offer include advertisements, price lists,
catalogues, and displays of goods in a shop window or online store. These do
not constitute a binding offer, but rather an invitation to customers to make
an offer to purchase. Also, a shop owner displaying goods in their store
window is an invitation to customers to make an offer to purchase those
goods. The customer’s offer to purchase the goods at a certain price would
constitute a proposal, and the shop owner’s acceptance of the proposal
would form a binding contract.
 Landmark cases dealing with invitations to treat/offer

• Pharmaceutical Products of India Ltd. v. Gwalior Chemical Works Ltd. (1960)

In this case, the court held that a price list is an invitation to treat and not an
offer or proposal. The court held that a contract is only formed when an offer
is made by one party and accepted by the other.
• Fisher v. Bell (1961) This case established the principle that a display of goods
in a shop window or on a shelf is generally an invitation to treat and not an
offer. The customer’s offer to purchase the goods at a certain price would
constitute a proposal, and the shop owner’s acceptance of the proposal
would form a binding contract. In this case, the defendant shopkeeper
displayed in his shop window a flick knife accompanied by a price ticket
displayed just behind it. He was charged with offering for sale a flick knife,
contrary to s. 1 (1) of the Restriction of Offensive Weapons Act 1959. The
issue was whether the display of the knife constituted an offer for sale (in
which case the defendant was guilty) or an invitation to treat (in which case
he was not).
 Landmark cases dealing with invitations to treat/offer

• Harvela Investments Ltd. v. Royal Trust Co. of Canada (1986) This case established
the principle of the “invitation to tender,” which is a process by which a party invites
potential contractors to submit bids for a project. The court held that an invitation to
tender is not an offer, but rather an invitation to submit offers.
• Harvey v Facey (1893) In this case, the plaintiff (Harvey) telegraphed the defendant-
owner (Facey) asking if he would sell certain property known as Bumper hall Pen
and, if so, at what price. The defendant replied with a telegraph that simply stated
the lowest price (900 pounds)that he would accept for the property. The plaintiff
then claimed that the defendant had made an offer to sell the property at that price,
which he had accepted by his subsequent telegraphs. The court, however, held that
the defendant’s telegraph was not an offer to sell the property, but rather a mere
statement of the lowest price he would accept. The court held that the defendant
had not made any offer, and therefore there was no contract between the parties.
• The court further explained that an invitation to treat is not an offer, but rather an
invitation to commence negotiations or discussions. The court held that the
defendant’s telegraph was an invitation to treat, and not an offer to sell the property.
 Landmark cases contd.
• Pharmaceutical Society of Great Britain v. Boots
Cash Chemists Ltd. (1952) QB Mere exposure of
goods with a price-tag for sale by a shopkeeper
indicates to the public that he is willing to treat
but does not amount to an offer to sell. The
Contract will arise only when the offer is made by
the customer and accepted by the shopkeeper.
No customer can force the shopkeeper to sell
the goods at the price mentioned in the tag.
 D) Communication of offer is necessary
• Every offer must be communicated to the offeree. An offer when
accepted results in a contract. An offer can be accepted only after
it comes to the knowledge of the offeree. Sec. 4 states, “The
communication of proposal is complete…..” Lalman Shukla v.
Gauri Dutt.(1913) The case examines the existence of a contract
in a situation where there is no acceptance of the offer made by
the offeror. The legal position is that an offer alone does not lead
to the creation of legal rights. Legal rights come into existence
only after the offer has been communicated and accepted by the
offeree. In this case, the plaintiff had no knowledge about the
offer and didn’t give any acceptance to the offer. There was no
contract between the parties and the plaintiff was held not
entitled to get the reward.
Difference between a Contract and a Tort

Law of Torts and Contract Law are two

distinct branches of civil law that deal with
different types of legal issues. Law of Contract
is concerned with the rights and obligations
arising from agreements between parties
whereas Law ofTorts deals with civil wrongs
that cause harm to individuals voluntarily or
involuntarily. Some of the key differences
between Tort Law and Contract Law:
 1. Nature of the Relationship
• Contract Law involves a consensual
relationship between parties, where one party
promises to perform a certain obligation in
exchange for something from the other party.
• On the other hand, a Tort deals with non-
consensual relationship where a party’s
actions or omissions results in harm/injury to
another person.
 2. Basis of Liability
• In Contract Law, the parties are liable for the breach of the terms of the
agreement. In other words, duty is based on the privity of contract and
each party owes duty only towards the other contracting party. For
example: A and B enter into a contract. A’s duty is towards B and B only.
Similarly, B’s duty under the contract lies only towards A and no other
person. This explains that a stranger to contract cannot sue.
• On the other hand, in Tort Law, the liability is based on the breach of a
legal duty fixed by law towards others. Duties imposed by law of Torts
are not towards any specific individual or individuals but they are
towards the world at large. For example, I have a duty not to defame or
assault anyone. Although, even in a tort only that person will be entitled
to sue who suffers damage by the breach of the duty. For, instance,
anyone who is defamed by me is entitled to bring an action against me
for the tort of defamation.
 3. Motive
• In a contract, motive for a
breach of contract is often
taken into consideration,
• whereas in a tort, motive
for breach of duty is
immaterial.
 4. Nature of right
• A breach of Contract is an infringement of a right
in personam, i.e., a right available only to a
definite person, the other contracting party.
• In a tort, there is a violation of right in rem i.e., a
right vested in some determinate person and
available against the whole world. For example: I
have a right to peaceful possession of my
property, no one is allowed to trespass it. I am
entitled to sue anyone who trespasses on my
property.
 5. Damages
• In case of breach of Contract, the damages are generally
‘liquidated’, i.e. where the sum payable by way of damages
is predetermined. It is limited to the losses suffered as a
direct result of the breach of the agreement.
• In an action for Tort, damages are always ‘unliquidated’, that
is , when the amount payable is not predetermined by the
parties and the court is at liberty to exercise its discretion as
it thinks just as per the facts and circumstances of each
case. Here, the damages can include compensation for
various types of losses, such as physical and emotional
harm, damage to property, loss of income, and more.
 Standard of Care
• In a Contract, the standard of care is
usually defined by the terms of the
agreement.
• In aTort, the standard of care is
usually based on what a reasonable
person would do in similar
circumstances.
 6. Remedies
• In Law of Contract, the remedies are usually
limited to specific performance of the
agreement, damages, or termination of the
agreement.
• In Law of Tort, the remedies can include
compensation for the harm caused,
injunctions to prevent further harm, and
more.
 Cross offers
• What are cross offers?
• Where two persons make identical offers to each other, and both such persons do
not know about each other’s offer, then such offers are known as cross-offer. The
essentials of a cross offer are as follows:
• Same offer to one another: The first pre-requisite of a cross offer is that two or
more persons should make similar offers with the same details.
• Without knowledge: Such identical offers must be made in ignorance of the offer
made by the other party.
• The terms and conditions: The terms and the object of the offers must be the
same. A set of offers would be considered to be cross offers only when the terms
and conditions as well as the object of the offers are the same. If not, then such
offers cannot be called a cross offer but a counter offer.
Thus, When the offers made by two persons to each other containing
similar terms of bargain cross each other in post, they are known as cross offers.
A cross offer does not mean acceptance of the offer. No binding contract is created.
 Examples
• a)A offers to sell his horse for Rs. 20,000 through a letter sent by post to
B. On the same date, B also writes to A making an offer to purchase A’s
horse for Rs. 20,000. When A or B send their letters, neither knew about
the offer being made by the other party. In these cross offers, even
though both the parties intended the same bargain, there is no contract
between A and B. A contract could arise only if either A or B having
knowledge of the offer had accepted the same.

• b) A from Delhi by a letter offers to sell his house to B of Bombay for Rs.
10 lakh. At the same time, B also makes an offer to A to buy A’s house
for Rs. 10 lakh. Both the parties made an exact offer to each other
without knowing about the offer being made by the other. The two
letters cross each other. There is no concluded contract between A and
B because both the parties had only made a cross offer.
 Tinn V. Hoffmann

A wrote to B expressing his willingness to sell 800 tons of iron at 69 sterling per
ton. On the same day, B also wrote to A offering to buy 800 tons of iron at the
same rate of 69 sterling per ton. The two letters crossed each other in post. B
brought an action against A for the supply of iron contending that a valid
contract had been created against the two parties. The court held that in this
case there were only cross offers and since the offer of neither of the parties had
been accepted by the other, there was no valid contract between the parties.
An offer is a sign of willingness. On acceptance, it becomes a promise. Both the
offer and acceptance must be communicated. Cross offers can never lead to a
valid contract as they lack all the essential ingredients. A cross offer is made
when both the parties make identical offers to each other without knowing that
the other has made a similar offer. It lacks acceptance and communication. Thus,
it does not form a valid contract. The concept of cross offers is not explained
within the Indian Contract Act but has been developed over the years through
judicial precedents.
 Specific and General Offers

• When an offer is made not to a certain person but to the public at

large, it is known as General offer. An offer need not always be made
to an ascertained person but it is necessary that an ascertained
person should accept it.
For instance, an offer to give reward to anyone who finds a lost
jewel or a pet, is a general offer. The finder can successfully claim the
reward. But the position will be different if the finder has no knowledge
of the reward. Unless the person performing those conditions has got
the knowledge of the offer, there is no question of his act amounting to
acceptance. Lalman Shukla V. Gauri Dutt (1913) All, it was held that the
servant was not entitled to claim the reward because it came to his
knowledge after he had discovered the boy which he was obliged to do
as a servant.
 Acceptance of general offer
• Section 8: Performance of the conditions of a proposal … is an
acceptance of the proposal.
Contract is complete: The general offer though is made to
the public at large, the contract is concluded only with that
person who acts upon the terms of the offer. Carlill V.
Carbolic Smoke Ball Company( 1893) Q.B. , Where an offer is
made to the whole world, acceptance of the offer and
performance of the condition will be sufficient for making it an
enforceable contract. It was held that the advertisement being a
general offer made to the whole world had ripened into a
contract with the plaintiff (Mrs. Carlill) by her act of performance
of the required conditions and thus accepting the offer. She was
entitled to claim the reward.
 Standing, Open or Continuing Offer

An offer which is allowed to remain open for acceptance

over a period of time is known as a standing, open or a
continuing offer.
For example, an offer to supply 2000 bags of cement in
accordance with the orders which may be placed from time
to time within a year or six months, is a standing offer. As
and when the orders are placed that amounts to acceptance
of the offer to that extent resulting in a binding contract.
 Counter offer
• In contract law, a counter offer is a response
to an initial offer, presenting an alternative
proposal. When you receive a counter offer, it
indicates that the original offer was rejected
and replaced with this new proposition. It is
crucial to understand that once a counter offer
is made, the previous offer is considered void,
and the final contract made will not be valid
unless the revised terms are accepted.
• It is important to note that for a legally binding
agreement to be formed, the first offer must
be entirely and unconditionally accepted.
Should any terms of the offer be altered, it is
regarded as a counter offer, not an
acceptance.
 Acceptance [S. 2(b)]

• When a 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.
• Anson explains the effect of acceptance of an offer as:
“Acceptance is to an offer what a lighted match is to a train
of gunpowder…” Just as when the lighted match comes in
contact with gunpowder, there would be an explosion and
then it will not be possible to bring the things back to the
original position, similarly, after the offer is accepted, it
creates a contract whereby both the parties are bound and
none of them can go back. In other words, what happens after
explosion or after acceptance cannot be undone.
 Effect of Acceptance
The person making the proposal does not
become bound thereby until acceptance. As soon as the
proposal is accepted, it becomes a promise whereby
both the parties become bound. A contract is created
only after an offer is accepted. Before the acceptance is
made neither party is bound thereby. At that stage, the
offeror is free to revoke or withdraw his offer. And the
offeree is free not to accept the offer or to reject the
same. After the acceptance, the offer becomes a
promise which, if other conditions of a valid contract are
fulfilled, binds both the parties to the promise.
Essentials of a valid acceptance
– Acceptance should be communicated by the
offeree to the offeror.
– Acceptance should be absolute and unqualified.
– Acceptance should be made in some usual and
reasonable manner, unless the proposal
prescribes the manner of acceptance.
– Acceptance should be made while the offer is still
subsisting.