what-is-an-offer-types-of-offer-and-invitation-to-offer-in-law

What is an offer? The first and most important essential element of the contract is an offer and acceptance. In this blog post, we will discuss what is an offer letter? and its rules for making a valid offer.

An agreement arises when one party makes an offer to another and the other party to whom the offer is made, accepts it.

In every case of a valid agreement, there is an offer and acceptance. Without offer and acceptance, no agreement can be framed.

In the Indian Contract Act, the word proposal is used but the proposal and offer are synonyms.

So let’s discuss an offer in detail.

Definition of a Proposal/Offer

What is the offer in contract law? The definition of an offer is given under section 2 (a) of the Indian Contract Act, the proposal means ‘When one person signifies to another person his willingness to do or to abstain from doing anything, to obtain the assent of that other person to such act or abstinence, he is said to make a proposal.’

Here, in the above definition, we can divide it into two parts to understand the meaning of the definition.

1. One party i.e. offeror express his willingness to another person i.e. offeree to do something or not to do something.

2. The expression of the will should be made to obtain the assent of that person to whom an offer is made.

Offeror: The person who is making an offer is called an offeror/promisor.

Offeree: The person to who the offer is made is called is the offeree.

Promisee: When the offer is accepted by the person to whom the offer is made is called a promisee.

Example: A made an offer to sell his bike for Rs. 50,000/- to B. And, B accepts A’s offer and purchase the bike.

So, here A is making an offer so he is an offeror and B accepts A’s offer so he is an offeree.

Hence, we found three characteristics of a valid proposal

  1. Willingness of person
  2. To do or not to do anything
  3. To obtain the assent of another person

Legal Rules of a Valid Offer

Here, we will discuss the essential rules which are required to be performed by the parties to the contract for making a valid offer.

  1. There must be two parties
  2. Offer must be communicated with the offeree
  3. Offer must be clear and not indefinite or ambiguous
  4. There must an intention of the parties to create a legal relationship
  5. Offer can be made subject to any Terms and Conditions

Let’s discuss one by one;

1. There must be two parties

For making a valid agreement there must be at least two parties. One who makes an offer i.e. offeror and who accepts the offer i.e. offeree.

Here, the parties can be legal persons (individual persons) or artificial persons (legal entities like companies, corporations etc).

2. Offer must be communicated with the offeree

For the formation of an agreement, there must be an offer and acceptance. However, if one person makes the offer but there should be another person to whom the offer is to be communicated with him for his acceptance to that offer.

Example: A wants to sell his house. But it is in his mind, he does communicate with any other. So, it is not an offer.

In section 4 it is provided that the communication of offer is completed when it comes to the knowledge of the offeree.

In the case of Lalman Shukla v/s Gauri Dutta, 1913, (Popularly Known as Missing Boy’s Case). It was held that there is no acceptance of the offer made by the defendant, and there is no formation of a contract. Further, the court observed the rule and the court held that the communication of a proposal is mandatory for a valid contract.

3. Offer must be clear and not indefinite or ambiguous

Mere communication is not valid communication. This means the offer to whom it is made must be clear and should come to the knowledge of that person.

Any offer made to the offeree which is not clear and ambiguous then it can not be understandable by the offeree. 

If the terms of the offer are not clearly communicated with the offeree and the offeree accepts it, then it is not a valid offer. 

Example: A has two-car and he wanted to sell one of his cars. A makes an offer to B to buy his car for Rs. 5,00,000/-. It is not a valid offer. Because B has no knowledge of which car A wanted to sell.

In the case of Foley v/s Classique Coaches Ltd. 1934, the rule was laid down that the terms and conditions of the offer must be clearly communicated with the offeree and it should come into the knowledge of the offeree.

4. There must an intention of the parties to create a legal relationship

An offer should be made to create a legal relationship between the parties to the agreement, if the parties failed to create a legal relationship then there is no valid offer.

This rule is nowhere provided in the Indian Contract Act, 1872. But, as looking at English Common Laws, the word willingness is found in the definition of an offer under section 2 (a) of the Act. 

Here, the term willingness is referred to as the intention of the parties to create a legal relationship among the parties to the agreement.

Example: A invites B for dinner. B accepts the invitation. Here, it does not take any legal relations or legal obligations among them. So, there is no agreement.

In the case of Balfour v/s Balfour, 1913, it was held that to make a valid agreement the parties to the agreement must create a legal relationship between them.

In this case, the rule of law is, If the parties are not intended to create the legal relationship and do raise to a binding agreement, then the agreement cannot be enforceable by law, and there is no binding contract between them.

5. Offer can be made subject to any Terms and Conditions

The offeror can make an offer by imposing certain terms and conditions. And, also can prescribe the mode of acceptance. Then the acceptance of the offer should be made with the prescribed mode of acceptance.

Example: A makes an offer to sell his bike for Rs. 50,000/- to B with a condition that the payment should be made in cash only. Then B has to accept it and for purchasing the bike should make payment in cash only.

If B disagrees to make a payment in cash. Then there is acceptance of an offer. And, there is no agreement.

Difference Between Offer and Invitation to Offer

What is invitation to offer? The offer and invitation to treat (an offer) in contract law are not the same. An offer is an expression of willingness made by the offeror to the offeree, whereas an invitation is to invite any person to make an offer with him.

The major difference between an offer and an invitation is the purpose of it. The main purpose of an offer is to get the assent of the other person whereas the main purpose of the invitation is to get an offer from any other person.

In simple meaning, the invitation means one person invites any other person to make an offer with him. Look at the example given below;

Examples of Invitation to Offer: Rate list, Catalogue, Display Price, Railway timetable, Tender, Voluntary Retirement and Auction Schemes etc.

Different Types of Offer in Contract Law

An offer has many times, there are 7 kinds of an offer in contract law;

  1. Express offer  
  2. Implied offer 
  3. General offer 
  4. Specific Offer 
  5. Cross Offer 
  6. Counter Offer 
  7. Standing Offer 

1. Express Offer

Express Offer’s definition is provided in Section 9 of the Act, ‘In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express.’

Means, offer, or acceptance to the contract are given in oral or written words known as an express offer.

2. Implied Offer

The definition of an Implied Offer is also provided in Section 9 of the Act, ‘In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.’

This means, offer or acceptance to the contract is given other than oral or written words that are by the conduct of the parties then it is known as an implied offer.

3. General Offer

The general offer means an offer that is made to everyone. This type of offer is available in the world at large. This offer is can be acceptable for everyone.

In this type of general offer, there is no need for acceptance to the offeree. Anyone who performs the terms and conditions prescribed by the offeror is considered as a completion of communication of an offer.

In the case of Carlill v/s Carbolic Smoke Ball Company, 1893, the company made an advertisement to the public that their capsule will protect from influenza disease. If anyone consumes the influenza disease after consuming the capsules then will be rewarded with $100. The decedent purchased the capsule believing the advertisement and the defendant caused the influenza disease. Plaintiff sued the company and got the reward of $100.

Here, the rule of law is making an advertisement is a general offer made to the public at large. Hence, anyone can accept the offer made through advertisement. Who performs as per the advertisement will automatically give acceptance to the offer.

This principle was laid down in the case of Carlill v/s Carbolic Smoke Ball Company 1893. 

In India, the same principle was laid down in the case of Lalman Shukla v/s Gauri Dutta, 1913.

4. Specific Offer

A specific offer is an offer made to a specific person or specific group of persons. In this kind of offer the person to whom the offer is made, only that person can accept the offer.

5. Cross offer

When two offer having the same conditions made by two persons crosses, they are cross-offers. The cross-offers are not valid offers.

In Dickinson v/s Dodds, 1875, it was held that a third party may revoke the offer by communicating this to the offeree. But, the third party must be objectively reliable.

6. Counter-Offer

The counter-offer is an offer that is made in the ignorance of the first offer made by the offeror to the offeree. A counter-offer can be made by the first offeree and offeror. Who makes the counter-offer become the offeror.

Example: A makes an offer to sell his house for Rs. 5,00,000/- to B. B makes a counter-offer that he agrees to purchase the house but the price should be 4,00,000/-, this is a counter-offer.

In the case of Hyde v/s Wrench, 1840, it was held that a counter-offer made by the offeree has the effect of revoking the original offer made by the first offeror.

7. Standing Offer

An Offer that is open for acceptance over some time is called a standing offer. For example, the tenders that are invited for the supply of goods is for a limited period, this is a kind of Standing Offer.

Conclusion

The offer is an important essential element for the formation of a contract. Without an offer and acceptance, there can’t be an agreement. An offer is the first step towards the formation of an agreement.

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