Offer: Meaning, Types and Invitation
Offer: Types and Invitation is an important topic in the study of the Law of Contracts. Not only because it is the beginning step in the basic learning of this law but also because the logical fault lines between the concept of offer and invitation should be clarified since that can lead to problems. I. Introduction A proposal… Read More »
Offer: Types and Invitation is an important topic in the study of the Law of Contracts. Not only because it is the beginning step in the basic learning of this law but also because the logical fault lines between the concept of offer and invitation should be clarified since that can lead to problems. I. Introduction A proposal or an offer is like the beginning of a contract. Not only the definition of the word contract is important but also, the practical examples along with the...
Offer: Types and Invitation is an important topic in the study of the Law of Contracts. Not only because it is the beginning step in the basic learning of this law but also because the logical fault lines between the concept of offer and invitation should be clarified since that can lead to problems.
I. Introduction
A proposal or an offer is like the beginning of a contract. Not only the definition of the word contract is important but also, the practical examples along with the situations considered by the court in exemplifying and explaining this concept of offer and proposal.
In the coming article different types of offer and the contradistinction with the invitation to treat or contract would be studied in detail.
II. Meaning of offer
Section 2(a) of the Indian Contract Act is very explicit in defining the term proposal as-
(a) 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;
To further explain the definition, we can revert to what the prominent jurist Chitty has to say. And, according to him, an offer is an “an expression of willingness to contract made with an intention (actual or apparent) that it is to become binding on the person making it as soon as it is accepted by the person to whom it is addressed”.[1]
To understand the types, the most common underlying factor is that of intention that is objectively identifiable. From the beginning this has been the case that the intention expressed has to be objective, that is, it must be reasonably construed by the person in the position of the offeree.[2]
III. Kinds of Offer
As is evidenced from the above- mentioned discussion, offer is the beginning point of any contract and can be through express or implied manner. This indicates the types in which offer can be materialised. Now we will check the various other types of offers –
1. Express Offer
It is clearly evident from the examples quoted above whereby the communication of the offer is clear and unequivocal. It is being expressly made and conveyed to the other party.
Hence, an express offer is the most usual form of offer. It is being made through letters, telephone or internet. The usage of language and words become mandatory. The communication of the intention has to be made from the offeror to the offeree clearly.
2. Implied Offer
When the communication is not through words and it becomes part of the conduct, then it can be termed as an implied offer.
To give validity to such kinds of offers, the courts use the maxims of “Consensu fiunt obligationes in emptionibus venditionibus” and “Ideo autem istis modis consensu dicimus obligationes contrahi.” They highlight the element of consent.
The consent can be express or implied. Important thing is that the minds of the parties have to meet. For an offer to be implied, all the necessary terms of the contract that are being proposed must be conveyed to the offeree. It will thus help in a seamless formation of the contract.[3]
The best example is that case of a builder who was being allotted the task of making a building. As per the entire terms of the contract that were expressly written in the agreement, nowhere was the clause of the fitness of habitation mentioned.
But, relying on the circumstances of the case that pointed towards the expertise of the contractors to produce habitable dwellings the court held the contractor to be so liable.[4] It is but natural also, in the given facts, that if a consumer asks for the construction of a building, it should be habitable.
3. Counter Offer
Sometimes, when the initial offer is being communicated to the other party, the respective person jumps back with modified or newer terms in which he/ she wants the formation of the contract to take place.
Some technical details may be changed[5] or some other details as the offeree may like. Once the offeror accepts the conditions so mentioned by the offeree in the new offer, the same becomes the true offer and an integral part of the contractual relationship that would be so affected.[6]
4. Cross Offer
In some tricky situations, two people can make simultaneous and similar offers to each other. This situation resembles that of the double coincidence of wants as used to happen in the system of Barter System of Exchange.
In the classic case of Tinn v. Hoffmann[7], the offers to buy the iron on similar terms were being placed against the same parties by the same parties respectively. The court held that the offer so made by the second party against the first one would not constitute to be an offer.
It is because the party was not aware of the initial offer so made by the first party and secondly, only an offer from the other party would not make it an acceptance at any costs. Also, it cannot be treated as any mutual acceptance. No binding effect would accrue on either party.[8]
5. General Offer
Pamphlets and TV announcements are the common example whereby bold offers are being thrown at the public for giving say, a reward. In such cases, where offers are being circulated at a larger public platform and open to acceptance to anyone, it amounts to a general offer.
The most common case used to explain this offer is that Carlill v Carbolic Smoke Ball Company[9]. The respective company famously produced a smoke ball. It also advertised to give reward of 100 pounds if somebody using the smoke ball catches influenza.
When the appellant developed influenza, the court considered that the terms mentioned in the unilateral offer stand fulfilled. After all, that generally offer had conditions to be fulfilled, which was duly done.
In another case, where a father advertised for giving reward to one who finds his lost son, the considered it to be a general offer. When somebody so found his son, court asked the father to accordingly pay.[10]
6. Specific Offer
As the name itself suggests, the communication of proposal happens towards a particular individual. The offer would fructify with a contract only at the assent being signified by that particular individual. This stands for a specific offer.
It shows how special and the exclusive element is being present in this type of offer.[11]
7. Standing or Open Offer
It is like a general offer made to the public at large. But it is being kept open for a certain period of time. In that frame, people can continue applying as it is also called a continuing offer. When the offer is accepted by the other part, the contract stands concluded in this case as well.[12]
The best example is that of a tender, that is nothing but an offer. Till the time, it is not accepted and the acceptance not communicated, the contract would not be formed.[13]
IV. Invitation
As the word again suggests, this is not the same as the offer. It acts act a mere facilitator in letting the party come to the spot of contract formation.
Examples
The goods lying in the showing case of shop, or the price of the bus tickets printed on its window, all are invitations to contract, not offers per se.[14] The simple reason that the intention to be bound by any sort of contractual relationship is absent from such scenes.
In government departments in India especially, many schemes are being rolled out for the benefit of the employees. In one of the cases, a Voluntary Retirement Scheme was being rolled out by a nationalised bank. The employees had to just fill a Performa and submit it to the department which would later be subject to the latter’s scrutiny.
The court held that the Scheme per se is a mere invitation to contract or treat. Whereas, the form so filled by the employee would constitute to be an offer.[15]
Difference
Hence, an invitation can never be compared with an offer. The former is a mere ascertainment of whether an offer can be obtained with a margin.[16] After all, it merely shows a readiness towards offers and not an intentionally made term specific communication of any sort of proposal.[17]
The difference also emanates from what the intention of the person is.[18] Calcutta High Court has explained the fine line of distinction by invoking this principle only. It was held that so long as one of the parties to the transaction can back out at one’s free will and choice, there can be said to exist no binding and concluded contract, although they may have an agreement on material terms.[19]
Advertisements
As a general rule, they are only considered as an invitation to offer and not offer per se, since an agreement can only be termed to come into existence when the invitee places an order and the invitor accepts the same.[20]
By the same logic, quotation of prices does not constitute to be an offer.[21] Even a letter asking for the quotation of terms would not be an offer.[22] Hence, the advertisements you see in newspapers or magazines would not be offers.[23] Therefore, the board hoardings also would not be an offer.
Displays
At a shop window, there are goods being placed with a price tagged. They are not naturally, offers.[24] Even the goods displayed at a self-service shop[25] and the indication of the price of petrol at a petrol pump[26] would be a display which is definitely not offered.
But on the other hand, a notice at the entrance of the automatic car park where the transaction is being effected through a machine has been termed as an offer.[27] The reason is simple. Here, the intention of the party is to enter into a legally binding obligation.
Auctions
As held above, if the party can anytime withdraw, the proposed statement does not become offered. Hence, in an auction bid, the bidder has the freedom to withdraw it until it is accepted hence it is a mere invitation to treat.[28]
Tenders
The invitation for tenders would again constitute to be an invitation as compared to an offer. The justification, as the courts provide, is that it is an offer to receive offers.[29] It is also the case when the reserve price is fixed.[30]
But the actual tender would be an offer and would become binding if accepted.[31]
Conclusion
In the above article, we get to know about different types of offer along with the major distinction with that of an invitation to offer. This distinction plays around the fact of the intention of the parties which has to be deduced as per the legal nuances as well as the facts of a particular case.
[1] Chitty, Chitty on Contracts 90 (28th Edn, 1999).
[2] Paal Wilson & Co. A/S v. Partenreederei Hannah Blumenthal, [1983] 1 All ER 34 QBD.
[3] New India Sugar Mills Ltd. v. CST, AIR 1963 SC 1207.
[4] Basildon Dc v. J.E. Lesser Ltd.,(1985) 1 All ER 20.
[5] Fair Air Engineers (P) Ltd. v. N.K. Modi, (1996) 6 SCC 385.
[6] Id.
[7] Tinn v. Hoffman, (1873) 29 LT 271.
[8] Id.
[9] Carlill v. Carbolic Smoke Ball Company, [1892] EWCA Civ 1.
[10] Harbhajan Lal v. Harcharan Lal, AIR 1925 All 539.
[11] Boulton v. Jones, [1857] Eng R 935.
[12] Manickem Chettiar v. the State of Madras, AIR 1971 Mad 221.
[13] K.G. Construction v. Municipal Corporation of Greater Bombay, 1999 (3) Bom LR 339.
[14] Cheshire, Fifoot and Furmstone’s Law of Contract, 14th Edn., p. 33.
[15] Bank of India v. O.P. Swarnakumar, AIR 2003 SC 858.
[16] Anil Kumar Srivastava v. the State of U.P., AIR 2004 SC 4299.
[17] Binani Metals Ltd. v. Union of India, 2005 (1) RAJ 30 (Del- DB).
[18] Sir Frederick Pollock et. al., Pollock & Mulla, The Indian Contract and Specific Relief Acts 39 (Lexis Nexis 2013).
[19] Bajinath v. Ksetrahari Sarkar, AIR 1955 Cal 210.
[20] Chaturbhuj Vithaldas Jasani v. Moreshwar Parashram AIR 1954 SC 236.
[21] AM Mylappa Chettiar v. Aga Mirza Mahoamed Shirazee, (1919) 37 Mad LJ 712.
[22] Firm Durga Parshad Mutsaddi Lal v. Firm Reulia Mal Doogar Mal, AIR 1922 Lah 100.
[23] Patridge v. Crittenden, [1968] 2 All ER 421.
[24] Timothy v. Simpson, [1834] 6 C&P 499.
[25] Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd., [1953] 1 QB 410.
[26] Esso Petroleum Ltd v. Commissioners of Custom and Excise, [1976] 1 All ER 117.
[27] Thornton v. Shoe Lane Parking Ltd., [1971] 2 QB 163.
[28] Joravarmull Champalal v. Jeygopaldas Ghanshamdas, AIR 1922 Mad 486.
[29] Sp Consolidated Engineering Co. (P) Ltd. v. Union of India, AIR 1966 Cal 259.
[30] Anil Kumar Srivastava v. State of Uttar Pradesh, AIR 2004 SC 4299.
[31] Sir Frederick Pollock et. al., Pollock & Mulla, The Indian Contract and Specific Relief Acts 42 (Lexis Nexis 2013).
