The Essentials of Offer/Proposal in Contract Law: Definition, Communication, and Revocation

Theoretical overview

Proposal is defined under Section 2(a). it is the first step of any contract. It is the expression of willingness of a person to do or to abstain from doing something, with a view to obtain assent from another. An offeror is a person who expresses his willingness to do or abstain from doing something.

The Communication of Proposal is mentioned under Section 3 and 4 of the Indian contract act. Proposal can be communicated through any act or omission of the offeror which has effect of making his willingness known to another. It could be through word/ actions/ conduct. Communication of proposal is complete when it is put to the knowledge of the person to whom it is made which is enshrined under section 4.

Section 9 states that an Act can be express or implied. Express can be oral or written. If offer and acceptance are express, it is an express promise, likewise for implied. When the proposal is made through words it is an express promise, and when it is made through actions it is an implied promise. Offer and acceptance can be spelt out from the conduct of the parties which not only cover their acts but their omissions. Regards must be had to the totality of the circumstances in which the parties contracted, and not merely to the formalities of offer and acceptance. A contract implied in fact requires meeting of minds

There is no provision in the Indian Contract Act requiring that an offer or its acceptance should be made with the intention of creating a legal relationship because valid consideration is essential in order to create a contract.

Offers made to the world at large is known as general offer. However, contract is not with the entire world, but only those persons who come forward and perform the conditions of the proposal. Communication is not necessary, performance is sufficient for the contract to be made binding.

Invitation to Treat/Offer

Offer is the final expression of willingness by offeror to be bound by his offer, should other party choose to accept it. Where party, without expressing final willingness, proposes certain terms on which he is willing to negotiate, no offer only inviting other party to make offer on those terms.

In case of Auction, the bid is not an acceptance so as to entitle the highest bidder to get the goods. Highest bid is only an offer to buy, it is required to be accepted by auctioneer for it to be binding.

Revocation [Section 4, 5 and 6]

It can happen by any one of the following circumstances:

1. Communication through notice of revocation– it should be from offeror himself/ duly authorized agent and must reach the offeree before he mails his acceptance. It is effective only when it is brought to the mind of the person to whom offer is made. Communication of the revocation of the offer in office hours is valid even when it is not read. It is also valid when sent to the last known address of the offeree. Revocation of General Offer must be done through the same medium offer was published in. Revocation can happen before the work is started by the offeree in case of unilateral contract.
2. Lapse of time – If mentioned, within that time; otherwise ‘reasonable time’

• It is enough if the acceptor has posted the acceptance before the stipulated time, even if it reaches the offeror after the stipulated date

3. Death or unsoundness of mind [If the offeree knew of the conditions prior to accepting, then it will lapse. If he has bona fide knowledge that he is alive, it will be binding]
4. Failure to perform the terms of the contract (condition precedent)

If Acceptance and Revocation reaches at the same time, revocation prevails

Relevant section

Section 2(a) – Proposal is the first step of any contract. It is the expression of willingness of a person to do or to abstain from doing something, with a view to obtain assent from another.

Section 4 – Communication of proposal is complete when it is put to the knowledge of the person to whom it is made.

Section 9: Act can be express or implied. Express can be oral or written. If offer and acceptance are express, it is an express promise, likewise for implied. When the proposal is made through words it is an express promise, and when it is made through actions it is an implied promise.

Revocation [Section 4, 5 and 6]

Intention to create legal obligation- Section 10: There is no provision in the Indian Contract Act requiring that an offer or its acceptance should be made with the intention of creating a legal relationship because valid consideration is essential in order to create a contract.

Important case laws

1. Upton on Severn RDC v. Powell [(1942) All ER 220 (CA)] 

• Facts: Powell owned a plot of land where he had a farm, where a fire broke out. He called the fire brigade who came and extinguished it. He thought he was in the free service zone, which was not so. They went to court because he refused to pay as he had not consented to the higher rate.
• Held: It was express request to come and put out the fire, but the return payment was implied. A contractual duty to pay arises when one requests services from a party in the erroneous belief that the services were free, despite the fact that the party was entitled to such services without charge from another party. He made an implied promise to pay for the services.

2. CWT v. Abdul Hussain Mulla Muhammad Ali – consideration as intention

• Facts: Court discussed whether consideration implied intent to create legal obligations
• Held: Had no role, since we already require consideration to create a contract.
• Intention is required in English law. . In social relations, it is followed as a matter of course that the parties do not intend legal obligations. In the case of business relations, it is assumed that the parties intend legal consequences as a matter of course.

3. Balfour v Balfour  [1919] 2 KB 571
   Held: The law of contracts is not made for personal family relationships. As there was no intent to be legally bound when the agreement was agreed upon, there can be no legally binding contract. Arrangements made between husbands and wives are not generally contracts as the parties do not intend to be legally bound by the agreements. However, this does not mean that in family or social relations there cannot be a binding contract. All that is required by the law is that there is intention to create legal obligations.
4. McGregor v. McGregor [(1888) 21 QBD 424 (CA)] – held : This was a binding contract between husband and wife because she withdrew legal charges in return of allowance, so there existed an intention to form legal obligations. 
5. Simpkins v. Pays [(1955) 3 All.ER 10] – Held: Court said there exists an intention because when 3 people are entering into a competition, and they are putting in their labour, there is an implied promise that exists to share whatever reward comes out of it.

6. Rose and Frank Co. v. JR Cromptom and Bros Ltd  [1925] AC 445 – Held: Although in business relations, it is generally assumed that a contract is intended, in this case, there is a specific clause stating the intention of parties not to be bound in a legal contract. As the parties did not intend to be bound, there is no legally enforceable contract, court must respect their intentions.

7. Carlill v. Carbolic Smoke Ball Company [(1893) 1 QB 256] – Held- The defendant intended the advertisement to not be a mere puff because money had been deposited in the bank to show their sincerity.

Points to remember

• Proposal is the first step of any contract. It is the expression of willingness of a person to do or to abstain from doing something, with a view to obtain assent from another.
•  Act can be express or implied. Express can be oral or written. If offer and acceptance are express, it is an express promise, likewise for implied. When the proposal is made through words it is an express promise, and when it is made through actions it is an implied promise
• General offer: Offers made to the world at large. However, contract is not with the entire world, but only those persons who come forward and perform the conditions of the proposal.