The Law of Offer in Contract Formation forms the foundation of every valid agreement under the Indian Contract Act, 1872. It defines how a proposal, when accepted, becomes a promise—creating enforceable legal obligations between parties. This principle outlines the essentials of a valid offer, its communication, types such as general, specific, cross, and counter offers, and the circumstances under which an offer lapses or stands revoked. Supported by landmark judgments like Carlill v. Carbolic Smoke Ball Co. and Balfour v. Balfour, it distinguishes between social promises and legally binding commitments, ensuring clarity in contractual intent and formation.
Table of Contents
- Legislative Provision
- Types of Offer
- Essentials of a Valid Offer
- Lapse of Offer or Revocation of Offer
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1. Legislative Provision
Section 2(a) provides that 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.
1.1 Essentials
- Two or persons are required, the one who is making offer i.e. offer or and to whom the offer is made i.e. offeree.
- Communication of offer.
- With the object to take assent of the other on the same thing.
- Offer should be certain nature.
2. Types of Offer
Other Types of Offer:
- Cross Offer
- Counter Offer
- Standing Offer
- Positive Offer
- Negative Offer
2.1 Express Offer
It may be written or oral. Written offer may be made by sending email, telegram, through letter or by proper sale deed. For example – A made an offer to sell his car to B for ` 5,00,000 by writing a mail.
2.2 Oral Offer
It may be made over the phone or in person when both are present at one place at same time. For example – A made an offer to B over telephone to sell a mobile of Samsung Brand (Note 5) for ` 52,000.
2.3 Implied Offer
It must be made by some positive act or sign or implied from the Act or conduct of the parties. For example – A delivery boy of McDonald mistakenly delivers you 5 Burgers for which payment has been made online by someone else. After taking the delivery, you also have consumed all. In these circumstances you are bound to pay the delivery man for the burgers you have consumed if he later came to your home for the payment of burgers delivered to you by him. But if the delivery has been taken by maid without knowing whether order has been made by you or not and after realising the mistake you also keep the order as it is then you are not bound to pay anything.
2.4 Specific Offer
This type of offer is made to a specific person or class of person. This type of offer must be accepted by the offeree and same must also be communicated to the offeror. For example – A offers to sell his car to B for ` 2,50,000. As this offer is made to B only B can accept this offer.
2.5 General Offer
General offer is made to public at large. This type of offer can be accepted by anyone. But the contract is not made with the public at large. Contract is made only with that person who comes forward and perform the conditions of the proposal. According to Anson1 “An offer need not to be made to an ascertained person, but no contract can arise until it has been accepted by an ascertained person”.
For this type of offer it is not necessary for the offerees to communicate their acceptance to the offeror because notification of acceptance is needed for the benefit of the offeror only and he may dispense with the notice to himself if he thinks desirable to do. In case where the offeror impliedly or expressly indicates that it will be sufficient to act on the proposal without communicating acceptance to the offeror, then performance of an act is a sufficient notification of acceptance and no further notification from the side of the offeree is required.
Case Law
In Carlill v. Carbolic Smoke Ball Co.2, the Defendant, the Carbolic Smoke Ball Company of London (Defendant), placed an advertisement in several newspapers on November 13, 1891, stating that its product. “The Carbolic Smoke Ball”, when used three times daily, for two weeks, would prevent colds and influenza. The makers of the smoke ball additionally offered a 100£ reward to anyone who caught influenza using their product, guaranteeing this reward by stating in their advertisement that they had deposited 1000£ in the bank as a show of their sincerity. The Plaintiff, believing Defendant’s advertisement that its product would prevent influenza, bought a Carbolic Smoke Ball and used it as directed from November 20, 1891 until January 17, 1892, when she caught the flu. Plaintiff brought suit to recover the 100£, which the Court found her entitled to recover.
There were three issues in this case.
- This case considers whether an advertising gimmick (i.e. the promise to pay 100£ to anyone contracting influenza while using the Carbolic Smoke Ball) can be considered an express contractual promise to pay.
- What was consideration in this case as defendant claims that it was a nudum pactum – That there was no consideration?
- Whether communication is required in general offer?
The court held that while sales puffery in advertisements is generally not intended to create a contract with potential product buyers, in this case it did because the Defendant elevated their language to the level of a promise, by relying on their own sincerity. The Court acknowledges that in the case of vague advertisements, language regarding payment of a reward is generally a puff, which carries no enforceability. In this case, however, Defendant noted the deposit of £1000 in their advertisement, as a show of their sincerity. Because Defendant did this, the Court found their offer to reward to be a promise, backed by their own sincerity.
It was further held that the advertisement was an offer made specifically to anyone who performed the conditions in the advertisement rather than a statement “not made with anybody in particular so it was a general offer. Communication of acceptance is not necessary for a contract when people’s conduct manifests an intention to contract. The nature of Mrs. Carlill’s consideration (what she gave in return for the offer) was good, because there is both an advantage in additional sales in reaction to the advertisement and a “distinct inconvenience” that people go to when using a smoke ball.
General Offer of Continuing Nature.
Where a general offer is of continuing nature, it will be open for acceptance to any number of person until it is retracted. But where an offer requires some information as to a missing thing, as mentioned in offer will be closed as soon as the first information is received.
Example
A made announcement that whosoever will find his missing nephew, will get the reward of ` 1,000 on March 1, 2017. Mr. B found the nephew and informed A about this on March 10, 2017.
In this example, the offer will remain open for the entire world till March 10, 2017 as on March 10, the first information is received by Mr. A. After this date offer will be closed and cannot be accepted by any other person.
2.6 Cross Offer
Sometimes two parties make similar offers to each other without knowing the offer made by the other. These are called cross offers. In such a case, no binding contract will be created as no one has accepted the offer made by the other.
Example
A by a letter makes an offer to B to sell his car for ` 2,10,000. At the same time B of M makes a similar offer to A to buy his (A’s) car for ` 2,10,000. Offers of both A and B cross each other in the post. These offers are called cross offers. Such offers do not constitute acceptance of one’s offer by another. Hence, there is no contract.
In short two offers are said to be cross offer, if:
- They are made by the same parties to one another,
- Each offer made in ignorance of the offer made by the party,
- The terms and conditions contained in both the offer are same.
If all the above mentioned essentials will be present, there will be no concluded contract.
Case Law
In Tinn v. Hoffmann3, A wrote to B indicating his willingness to sell 800 tons of iron at 69 sh. per ton. On the same day, B also wrote to A offering to buy 800 tons of iron at the same rate i.e. 69 sh 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 between the two parties. It was held in this case that there were only two cross offers and no contract had ever entered into between A and B.
2.7 Counter Offer
Counter-offer refers to an offer to contract on terms materially different from the terms of the offer. It is, thus, an alternative proposal made by the offeree in substitution for the original offer. When the purported acceptance of an offer contains a counter-offer, it is no acceptance at all and is corresponding to rejection of the original offer. Such a counter-offer may, however, be accepted by the original offeror and can thus give rise to legal obligations. It is important to note that a simple request as to whether or not other terms would be acceptable does not amount to a counter-offer, since such a request does not, by itself, reject an offer.
Case Law
In Air Engineers (P.) Ltd. v. N.K. Modi4, it was held that when the quotation was offered with the conditions enumerated thereunder, the respondent merely made a counter-offer giving technical details of a part of the offer as counter-offer and when it was accepted by the appellant, the parties agreed for that offer and the counter-offer. In other words, they became an integral part of the contract of the parties.
2.8 Standing offer or Continuing Offer
An offer that is kept open for acceptance over a period of time is termed as ‘standing’, ‘open’, or ‘continuing’ offer. Thus, a tender to supply goods at specified prices as and when required are of the nature of standing offer. The tenderer must supply whenever an order is placed, but he cannot insist on any order being made at all. The quantity to be supplied may or may not be specified.
Case Law
In Bengal Coal Co. v. Homee Wadia and Co.5, the Bengal Coal Co. agreed in writing to supply coal to Homee Wadia and Co. at certain prices and up to a stated quantity, or in any quantity which may be required for a period of twelve months. Before the expiry of 12 months, the defendant withdrew their offer to supply further coal, and refused to comply with the order made thereafter. They were sued for breach of contract. In this case it was held that there is no concluding contract unless B binds himself to take some certain quantity, but a mere continuing offer which may be accepted by B from time to time by ordering goods upon the terms of the offer. In such a case, each order given by B is an acceptance of the offer and A can withdraw the offer at any time before its acceptance by an order from B. They are bound to supply coal only as regards orders which had already been placed, but were free to revoke their offer for the supply of coal thereafter.
Case Law
In Union of India v. Maddala Thathaiah6 the dominion of India as the owner of Railway invited tender for the supply of 14,000 maunds of cane jaggery to the railway grain shops. Although the dates by which the supplies were to be made had been mentioned, yet orders for the supply had to be made from time to time. One of the conditions was that the administration reserves the right to cancel the contract at any stage during the tenure of the contract. When Deputy General Manager cancelled the contract, Maddala challenged the validity of this clause. In this case it was held that on the true construction of the contract, the condition that the appellant could cancel the agreement for such supply of jaggery about which no formal order had been passed by the Deputy General Manager with the respondent and did not apply to such supplies of jaggery about which a formal order had been placed specifying definite amount of jaggery to be supplied and the definite date or definite short period for its actual delivery. Once the order was placed for such supply on such dates, that order amounted to a binding contract making it incumbent on the respondent to supply jaggery in accordance with the terms of the order and also making it incumbent on the Deputy General Manager to accept the jaggery delivered in pursuance of that order.
2.9 Positive and Negative Offer
On the basis of modes of making an offer and from the words used to make an offer, we may divide offer in positive and negative offer. When offer demands and suggest doing of some act i.e. positive offer. For example – A proposes to sell his white Maruti 800 car to B for ` 2,50,000.
When by making offer one party forbearing other party from doing something i.e. omission of an act, then it is called negative offer. A offers not to file a suit against B, if B pays the balance amount of ` 60,000 within two days is an example of a negative offer.
3. Essentials of a Valid Offer
3.1 Intention to Create Legal Relationship
It must intend to create, and be capable of creating, a legal obligation. The foremost requisite of a valid offer is that it must contemplate to give rise to legal consequences and at the same time be capable of creating legal obligations. A domestic or social invitation cannot constitute a valid offer in the eye of the law.
Example
If someone invites his friend to dine with him or offers to take him to a movie, it cannot be regarded as an offer even though it was accepted and there was consideration, as the parties never intended to create legal obligations.
Case Law
In Balfour v. Balfour7 Mr. Balfour was a civil engineer, and worked for the Government as the Director of Irrigation in Ceylon (now Sri Lanka). Mrs. Balfour was living with him. In 1915, they both came back to England during Mr. Balfour’s leave. But Mrs. Balfour had developed rheumatic arthritis. Her doctor advised her to stay in England, because a jungle climate would be detrimental to her health. As Mr. Balfour’s boat was about to set sail, he promised her £30 a month until she came back to Ceylon. They drifted apart, and Mr. Balfour wrote saying it was better that they remain apart. In March 1918, Mrs. Balfour sued him to keep up with the monthly £30 payments. In an appeal, the Court of Appeal unanimously held that there was no enforceable agreement. It was laid down that it was only a domestic arrangement and not a legal contract because domestic arrangements are outside the realm of contract altogether.
Case Law
In S.V.R. Mudaliar v. Rajababu8, it was held that even if an agreement was described as gentlemen’s understanding, yet if there was a clear agreement that the property which was being conveyed would be re-conveyed to the vendor, the agreement was binding and there would be no need to prove that there was an intention to create legal relationship as that was presumed in such a case.
3.2 Its Terms Must Be Certain
An offer must be clear, definite, absolute, and final. An offer with vague or loose terms does not convey what it exactly means and thus cannot be resulted into a valid contract. For example, if A, who is the owner of five cars enters into an agreement with B to sell one of his car to him for ` 5,00,000. This type of offer cannot result into a contract because the terms of agreement are not certain. They are yet to be settled.
3.3 It Must Be Communicated
An offer becomes effective only when it has been signified or communicated to the person to whom it was made (i.e., offeree) so as to give him an opportunity to accept or reject it. Communication of offer is dealt under section 3 of the Act. Section 3 provides that the communication of proposals are deemed to be made by any act or omission of the party proposing, by which he intends to communicate such proposal or which has the effect of communicating it.
Case Law
In Lalman Shukla v. Gauri Datt,9 the nephew of the defendant absconded from home and no trace of him was found. The defendant sent his servants to different places in search of the boy and among them was the plaintiff who was the munim of his firm. He was sent to Haridwar and money was given to him for his railway fare and other expenses. After this the defendant issued handbills offering a reward of ` 501 to anyone who might find out the boy. The plaintiff traced the boy to Rishikesh and brought him back. He gave to the plaintiff a reward of two sovereigns and afterwards on his return to Cawnpore gave ` 20 more. The plaintiff did not ask for any further payment and continued in the defendant’s service for about six months when he was dismissed. He then brought this suit, out of which this application arises, claiming ` 499 out of the amount of the reward offered by the defendant under the handbills issued by him. The record shows that the handbills were issued subsequently to the plaintiff’s departure for Haridwar. It appears, however, that some of the handbills were sent to him there. In this case it was held that Lalman Shukla has no right in the reward because he had no knowledge of the proposal. Hence, an action without the knowledge of the proposal is no acceptance.
4. Lapse of Offer or Revocation of Offer
4.1 By Notice of Revocation
By giving the notice of revocation to the other party, the offeror can revoke the offer, and thus offer comes to an end. But an offer may be revoked any time before the communication of acceptance is complete as against the proposer but not afterwards as once the offer is accepted there is a binding contract.
Suppose a proposal is sent by Mr A to Mr B and is accepted by Mr B by letter that is posted on April 10, 2017. Mr A wanted to revoke offer on April 11, 2017. This offer cannot be revoked by Mr A as the communication of Acceptance against the proposer is completed soon Mr B posted the letter. It means before April 10, 2017, the offerer has all the liberty to revoke the offer as till that time communication of acceptance is not complete against the proposer but not after that.
The notice of revocation does not take effect until it comes within the knowledge of the offeree as the communication of a revocation is complete as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it and as against the person to whom it is made, when it comes to his knowledge.
Illustration
A revokes his proposal made with B by telegram. The revocation is complete as against A when the telegram is dispatched. It is complete as against B when B receives it.
4.2 By the Lapse of Time
An offer expires with the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time.
4.3 By the Failure of the Acceptor to Fulfil a Condition Precedent to Acceptance
An offer expires with the failure of the acceptor to fulfil a condition precedent to acceptance.
Illustration
Mr. Ramesh says to Sabina “I’ll sell my house of Palampur Village to you for 2 crores if you marry to Saurabh.” Sabina got married to Rakesh. The offer lapse due to the failure of condition precedent to acceptance.
4.4 By the Death or Insanity of the Proposer
By the death or insanity of the proposer if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.
- Anson’s Law of Contract, 40 (23rd edn., A. G. Guest, 1971)
- (1893) 1 QBD 256 (C.A.)
- (1873) 29 L.T. 271
- (1996) 6 SCC 385 at page 388
- (1899) ILR 24 Bom. 97
- AIR 1966 SC 1724
- (1919) 2 KB 571
- AIR 1995 SC 1607
- (1913) 11 All LJ 489
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