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Proposal/offer in Indian Contract Act

Proposal/offer in Indian Contract Act

Proposal/offer in Indian Contract Act

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Proposal/offer in Indian Contract Act

A proposal is defined as an offer made by one party to another party with the intention of entering into a legally binding agreement. It is an expression of willingness to do or not to do something, forming the basis of a contract.

Definition of : Proposal/offer in Indian Contract Act

According to “Indian Contract Act 1872” -“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 (offer).

The person who makes the proposal is called a “promisor”,

the person accepting the proposal is called a “promisee”.

When the promisee gives his assent, it becomes “Acceptance”, (i) The offer must be definite and give rise to legal consequences.

A proposal must be definite and specific in its terms, and it should be communicated to the other party with the intention of obtaining their acceptance. Once the other party accepts the proposal, it becomes a promise, and the terms of the contract bind the parties. If the proposal is not accepted, it will be considered a mere invitation to offer, and it will not create any legal obligation between the parties.

Illustrations :

A company (X) offers to sell its products to another company (Y) for a certain price. The offer is made in writing and sent via email to company Y. This offer is a proposal, and if company Y accepts the offer, it becomes a binding contract.
A person (A) offers to sell their car to another person (B) for a certain amount. The offer is made orally during a conversation between the two parties. This offer is also a proposal, and if person B accepts the offer, it becomes a binding contract.

Essentials elements of a valid offer :

1.There must be two parties: There must be atleast two parties, the first person who will make the offer and the other person who will accept the offer/proposal.

2.Their must be intention to create legal relation : Both the parties agreeing to the offer/proposal must have the clear intention to create the legal relation.

3.The proposal must be communicated: There must be a communication of the offer between both the parties. The communication should be either express or implied.

According to Section 4 of Indian Contract Act 1872 – The communication of a proposal is complete when it comes
to the knowledge of the person to whom it is made.

Example: b) B accepts A‟s proposal by a letter sent by post. The communication of the acceptance is complete,
as against A when the letter is post; as against B, when the letter is received by A

4.It must be certain and definite : The terms of offer must be certain and clear in order to create a valid contract, it must not be ambiguous. i.e. everything should be transparent in the terms of transaction or others , must not be hidden.

5.It may be specific or general : The specific offer is an offer that is accepted by a particular person or by an group to whom it is made. Whereas, general offer are accepted by any persons.

What is an invitation to offer?

An invitation to offer is a communication that encourages someone to make an offer or proposal. It is not an actual offer itself. Instead, it opens the door for negotiation and discussion, which may lead to a contract being formed.

In simple terms, an invitation to offer is a way to invite someone to start negotiations or discussions. It doesn’t legally bind anyone to accept any offers that come out of those discussions.

Examples of an invitation to offer include advertisements, price lists, catalogues, and displays of goods in a shop window or online store. These do not constitute a binding offer but rather an invitation to customers to make an offer to purchase the goods or services. Essentially, when you see a product advertised, it’s an invitation for you to express your interest, which may lead to a negotiation or transaction.

For example, when a shop owner showcases goods in their store window, it serves as an invitation for customers to make an offer to buy those items. If a customer decides to make an offer at a specific price, that action becomes a proposal. Once the shop owner accepts this proposal, a binding contract is established between them.

Landmark cases dealing with invitations to treat/offer :

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern ) Ltd.

Hon’ble Judges:
Lord Justice Somervell, Lord Justice Birkett and Lord Justice Romer
Counsels:
MR H.V. LLOYD-JONES, Q.C. and MR H. THOMAS DEWAR (instructed by Mr A.C. Castle)
appeared as Counsel on behalf of the Appellants (Plaintiffs)., MR G.G. BAKER, Q.C. and
MR G.D. EVERINGTON (instructed by Messrs Masons) appeared as Counsel on behalf of
the Respondents (Defendants).

Facts: In 1951, Boots Cash Chemists Ltd. started a self-service system in one of their pharmacies. Before, all medicines were behind the counter, and customers had to ask a pharmacist for help. With the new system, products were placed on open shelves so customers could pick items themselves and put them in a basket. They then took the items to the cashier’s counter, where a registered pharmacist supervised the sale and could approve or reject it.

On April 13, 1951, two women purchased products containing poison, which were regulated under section 18 of the Pharmacy and Poisons Act, 1933. The Pharmaceutical Society of Great Britain objected to this self-service method, arguing that it breached the Act because the sales were not supervised by a registered pharmacist at the point where the customers selected the items. The society contended that the display of goods constituted an offer, which the customers accepted by placing items in their baskets, thus completing the sale before reaching the cashier.

The Pharmaceutical Society of Great Britain sued Boots. They argued that the sales were illegal under the Pharmacy and Poisons Act, 1933. The society claimed that transactions happened without proper supervision by a registered pharmacist, which broke the law meant to protect people from harmful products.

Issue : The issues raised in Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd. are:

Whether the display of drugs in the shop involved an offer or an invitation to offer.
Whether Boots Cash Chemists Ltd. violated section 18(1)(a)(iii) of the Pharmacy and Poisons Act, 1933, by allowing customers to select items without the immediate supervision of a registered pharmacist.

Judgement :

In this case, both the Queen’s Bench Division and the Court of Appeal ruled in favor of Boots Cash Chemists. The Court explained that displaying goods is not an offer; it’s an invitation for customers to make an offer. When customers select items and put them in their basket, they are making an offer. At the cash counter, the pharmacist can choose to accept or reject that offer. The sale is completed at the cash desk with a registered pharmacist present. This follows the Pharmacy and Poisons Act, 1933, which requires supervision when selling certain drugs. So, the two women bought the packages containing poison under the supervision of a pharmacist.

Justice Somerwell saw the new process introduced by Boots as a more organized way to do business. Customers can choose what they want, and the contract is completed when the supervising pharmacist accepts the chosen item. Normally, in the case the plaintiff presents, once a customer selects an item, they cannot replace it or choose another one without just paying for it. Therefore, this situation should not be considered.

The Lord Chief Justice stated that the situation is similar to regular shop transactions. In this case, self-service is advertised. Picking up a bottle of medicine from the shelf does not mean the customer accepts an offer to buy. Instead, it’s the customer making an offer to purchase. He also pointed out that the sale was supervised by a registered pharmacist. Therefore, the appeal should be dismissed.

Conclusion

The Court of Appeal’s decision in Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd. is a landmark case in contract law that clarified the distinction between an offer and an invitation to offer.

Harvey v Facey

From The Supreme Court Of Judicature Of Jamaica
Citation: (1893) AC 552
Delivered On: 29th July 1893
Bench: The Lord Chancellor, Lord Watson, Lord Hobhouse, Lord Macnaghten, Lord Morris, Lord Shand. [Delivered By Lord Morris]
Law Applied: Offer, Acceptance And Invitation To Treat (Offer) In Contract Law

The case of Harvey v. Facey [1893] UKPC 1 is a significant ruling in English contract law by the Privy Council. It originated from an appeal against the Supreme Court of Jamaica’s decision. The case began on November 17, 1892, and the final judgment was delivered on April 7, 1893.

The parties in the case were :

Thomas Harvey – The appellant, who claimed that a binding contract for the sale of a property had been established
Horace Facey – The respondent who owned the property known as Bumper Hall Pen

Facts :

Facey owned a property called Bumper Hall Pen in Jamaica, which he was interested in selling
Harvey sent a telegram to Facey asking if they would be willing to sell Bumper Hall Pen and to telegraph back the lowest cash price.
In response to Harvey’s inquiry, Facey sent a telegram stating, “The lowest price for Bumper Hall Pen is £900.”
After receiving Harvey’s inquiry, Facey promptly sent a telegram in response, stating, “The lowest price for Bumper Hall Pen is £900.” Following this, Harvey sent another telegram agreeing to purchase the Bumper Hall Pen for the sum of £900 as requested by Facey.
However, in the meantime, Facey had sold the Bumper Hall Pen to another purchaser.
This led to Harvey suing Facey, claiming breach of contract. The main legal issue was whether Facey’s telegram stating the price was a valid offer that could be accepted, or if it was just an invitation to treat.

Harvey’s Reply :

Harvey sent a telegram to Facey, saying, “We agree to buy your Bumper Hall Pen property for the £900 you asked for.” Harvey thought this telegram made a valid contract to buy the property.

It seems like Harvey believed that by stating “we agree to buy” at the price quoted in Facey’s initial telegram, he was effectively communicating acceptance and concluding the contract.

Harvey thought that by saying “we agree to buy” at the price quoted in Facey’s first message, he was accepting and finalizing the contract. However, the court ruled that simply quoting a price doesn’t necessarily mean making a clear offer that can be accepted. Facey’s first message didn’t show intent to be legally bound or have enough specific details. Therefore, there was no offer for Harvey to accept. His response was an offer that still needed to be accepted by Facey.

It’s important to understand the distinction between offers and invitations to treat, as established in this case. Harvey’s belief that his telegram formed a binding contract was mistaken, as it was actually just an offer requiring further acceptance. This was because Facey’s initial message did not constitute a valid offer, as determined by the court.

Decision :

The court decided that there was no valid contract between Harvey and Facey. Facey’s initial telegram stating the price was not an offer to form a contract, but just an invitation to make an offer. For a contract to be valid, there must be a clear offer with the intention to be legally bound. Facey’s telegram did not meet these requirements. It was simply quoting a price in response to Harvey’s inquiry and did not show an intent to enter into a binding agreement.

Since Facey’s telegram was an invitation to make an offer, Harvey’s subsequent reply trying to accept the price did not create a contract. There was no offer that could be accepted. Therefore, the court found that no contractual relationship existed between the parties in this case.