What is offer in Business Law?
An offer is a proposal by one person to another to enter into a contract. The term offer is defined under
Section 2 (a) as under: ‘When one person signifies to another, his willingness to do or abstain from doing anything with a view to obtaining the assent of the offer, to such an act or abstinence, he is said to make a proposal’.
Table of Contents
- 1 What is offer in Business Law?
- 2 Elements of Valid Offer
- 3 Legal Rules as to Offer
- 4 Types of Offer
- 5 Lapse and Revocation of Offer
- 5.1 Offer lapses after stipulated or reasonable time
- 5.2 Offer lapses by not being accepted in the mode prescribed
- 5.3 Offer lapses by rejection
- 5.4 Offer lapses by the death or insanity of offeror or the offeree
- 5.5 Offer lapses by Revocation
- 5.6 Revocation by non-fulfilment of a condition precedent to acceptance
- 5.7 Offer lapses by subsequent illegality or destruction of subject matter
- 6 Business Law Notes
- 7 Business Law Book References
Elements of Valid Offer
Following are the essential elements of Valid offer:
For the valid offer, there must be two parties. A person cannot make an offer to himself.
The offer must be communicated to the offeree. If it is never communicated to the offeree, it cannot be accepted and no valid contract comes in to existence.
The offer must show a willingness of the offeror.
- Simply telling or sharing a plan is not an offer.
- Sharing the idea or feelings is not willingness.
If the party proposes certain terms on which he is willing to negotiate, in such a case, he is not making an offer because he is not expressing his willingness to enter into a contract.
Intention of obtaining assent
The offer must be made with a view to obtaining the assent of the offeree. The offer made out of a prank or as a joke is not a valid offer, and therefore if accepted, it can never make the valid contract.
Offer may be positive or negative
The offer may involve doing something or doing nothing- section 2 (o). The offer to do something is a positive offer or not to do something is a negative offer.
Legal Rules as to Offer
The offer is the first step in a valid contract. If the offer itself is not valid; the contract can never be valid.
Following are the legal rules as to offer:
- The ‘offer’ must be with the intent to create a legal relationship.
- The offer must be certain and definite. It must not be vague.
- The offer must be express or implied.
- The offer must be distinguished from an invitation to offer.
- The offer must be either specific or general.
- The offer must be communicated to the person to whom it is made.
- The offer must be made with a view to obtaining the consent of the offeree.
- An offer can be conditional but there should be no term in the offer that noncompliance would amount to acceptance.
Types of Offer
An offer can be classified on a number of different bases. We can summarize the types of offer in the following manner:
The offer made by using words spoken or written is known as an express offer.
Example: A says to B – ‘Will you purchase my car for Rs. 4,00,000?
The offer which could be understood by a conduct of parties or circumstances of case is called the implied offer.
Example: Withdrawal of the money from the card holder from the ATM. It creates an implied contract between the cardholder and the bank.
It is an offer made to public at large with or without any time limit.
In terms of Section 8 of the Act, anyone performing the conditions of the offer can be considered to have accepted the offer (Carlill v. Carbolic Smoke Ball).
It is not necessary that the offer should be made to a specific person. Until the general offer is retracted or withdrawn, it can be accepted by anyone at any time as it is a continuing offer.
Example: An advertisement in a newspaper, ‘Anyone who will find my lost Pendrive will be rewarded with Rs. 5,000.
Example: A says to B – ‘Will you purchase my car for $20000 ?’ It is a specific offer as it is made to B. Only B can accept it.
As per Section2(b), when a person to whom proposal (offer) is made signifies his assent, the proposal is said to be accepted. Thus, assent can be only to a ‘proposal’. If there was no proposal, the question of its acceptance cannot arise.
Example: If A makes a proposal to B to sell some goods at a specified price and B, without knowing proposal of A, makes a proposal to purchase the same goods at the price specified in the proposal of A, it is not an acceptance, as B was not aware of proposal made by A.
It is only cross proposal (cross offer). And when two persons make offer to each other, it cannot be treated as mutual acceptance. There is no binding contract in such a case [Tin v. Hoffmen & Co. 1873].
An offer which is made to the public at large and if it is kept open for public acceptance for a certain period of time, it is known as continuing or open offer.
Example: Tenders that are invited for the supply of materials and goods
Upon receipt of an offer from an offeror, if the offeree instead of accepting it straightway, imposes conditions which have the effect of modifying or varying the offer, he is said to have made a counter offer.
Counter offers amounts to a rejection of the original offer.
Example: Anuj offered to sell his book to Bivek for Rs 2,000. B replied, ‘I am ready to pay Rs 1,900’. On Anuj’s refusal to sell at this price, Bivek agreed to pay Rs. 2,000. Held, there was not contract, as the acceptance to buy it for Rs. 1900 was a counteroffer, i.e. rejection of the offer of Anuj.
The subsequent acceptance to pay Rs 2,000 is a fresh offer from B to which A was not bound to give his acceptance.
Lapse and Revocation of Offer
Section 6 deals with various modes of lapse of an offer.
An lapse and revocation of an offer become invalid (i.e., comes to an end) in the following circumstances:
Offer lapses after stipulated or reasonable time
An offer lapses if acceptance is not communicated within the time prescribed in the offer, or if no time is prescribed, within a reasonable time [Sec. 6(2)].
For example, an offer made by whatsapp suggests that a reply is required urgently and if the offeree delays the communication of his acceptance even by a day or two, the offer will be considered to have lapsed.
Offer lapses by not being accepted in the mode prescribed
But, according to section 7, if the offeree does not accept the offer according to the mode prescribed, the offer does not accept the offer according to the mode prescribed; the offer does not lapse automatically.
It is for the offeror to insist that his proposal shall be accepted only in the prescribed manner, and if he fails to do so he is deemed to have accepted the acceptance.
Offer lapses by rejection
An offer lapses if it has been rejected by the offeree. The rejection may be express i.e., by words spoken or written, or implied.
Example: A offered to sell his car to B for Rs 20 Lakhs. B offered Rs. 18 Lakhs for which price A refused to sell.
Subsequently, B offered to purchase the car for Rs. 20 Lakhs. A, declined to adhere to his original offer. B filed a suit to obtain specific performance of the alleged contract. Dismissing the suit, the court held that A was justified because no contract had come into existence, as B, by offering Rs. 18 Lakhs, had rejected the original offer.
Subsequent willingness to pay Rs 20 Lakhs could be no acceptance of A’s offer as there was no offer to accept. The original offer had already come to an end on account of ‘counter offer’ (Hyde vs Wrench).
Offer lapses by the death or insanity of offeror or the offeree
If the offeror dies or becomes insane before acceptance, the offer lapses provided that the fact of his death or insanity comes to the knowledge of the acceptor before acceptance [Sec. 6 (4)]
It may be inferred that acceptance in ignorance of the death or insanity of the offeror, is a valid acceptance, and gives rise to a contract.
Thus the fact of death or insanity of the offeror would not put an end to the offer until it comes to the notice of the acceptor before acceptance.
An offeree’s death or insanity before accepting the offer puts an end to offer and his heirs cannot accept for him (Reynolds vs. Atherton).
Offer lapses by Revocation
An offer is revoked when it is retracted back by the offeror. An offer may be revoked, at any time before acceptance, by the communication of notice of revocation by the offeror to the other party [Sec. 6(J)]
Example: At an auction sale, A makes the highest bid. But he withdraws the bid before the fall of the hammer. There cannot be a concluded contract because the offer has been revoked before acceptance.
Revocation by non-fulfilment of a condition precedent to acceptance
An offer stand revoked if the offeree fails to fulfil a condition precedent to acceptance [Sec. 6 (3)].
Example: where A, offers to sell his bike to B for Rs. 30,000, if B joins the lions club within a week the offer stands revoked and cannot be accepted by B if B fails to join the lions club (in default of payment of earnest money).
Offer lapses by subsequent illegality or destruction of subject matter
An offer lapses if it becomes illegal after it is made, and before it is accepted.
Example: where an offer is made to sell 10 bags of wheat for Rs. 20,000 and before it is accepted, a law prohibiting the sale of wheat by private individuals is enacted, the offer comes to an end.
In the same manner, an offer may lapse if the thing, which is the subject matter of the offer, is destroyed or substantially impaired before acceptance.
Business Law Notes
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Business Law Book References
- Goel, P. K. (2006). “Business Law for Managers” Wiley
- Sheth, T. (2017). “Business Law” (2ed.) Pearson.
- Kuchhal. M.C. & Prakash. “Business Legislation for Management” (2ed.) Vikas Publishing.
The Indian Contract Act is divisible into two parts.
The first part (Section 1-75) deals with the general principles of the law of contract and therefore applies to all contracts irrespective of their nature.
The second part (Sections 124-238) deals with certain special kinds of contracts, namely contracts of Indemnity and Guarantee, Bailment, Pledge, and Agency.
1. Essential Elements of a Valid Contract
Sales of Goods Act 1930 came into force on 1st July 1930. It extends to the whole of India. It does not affect rights, interests, obligations and titles acquired before the commencement of the Act. The Act deals with the sale but not with mortgage or pledge of the goods.
Negotiation of an instrument is the process by which the ownership of an instrument is transferred from one person to another.
1. Methods of the negotiation of instrument
2. Definition of Negotiable Instrument
3. Meaning of Negotiable Instrument
4. Characteristics of a Negotiable Instrument
5. Presumptions as to Negotiable Instruments
6. Classification of Negotiable Instruments
7. Types of Negotiable Instruments
The crossing of Cheque means that the specific cheque can only be deposited straightway into a bank account and cannot be instantly cashed by a bank or any credit institution.
Bill of exchange is an instrument ordering the debtor to pay a certain amount within a stipulated period of time. Bill of exchange needs to be accepted in order to call it valid or applicable. And the bill of exchange is issued by the creditor.
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