Proposal

DEFINITION
Section 2(a) of the Act defines a proposal as under:
"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'."
The first step towards creating a contract is that one person shall signify or make a proposal to the other, with a view
to obtaining the assent or acceptance of that another to that act or abstinence. A proposal is then said to be made.
'Proposal' o f the Indian Contract Act is synonymous with the term 'offer' of the English Law.
In order to constitute a contract, a person should offer to do something. This offer must be sufficiently
communicated to the person for whom he intends to do something with a view to obtaining his assent to it. The person who
makes such an offer or proposal is called the 'Offerer' or "Proposer." Section 2(c) calls such a person making the
proposal, the "Promisor." The person who accepts the proposal or offers his assent to it is called the "Promisee."
The offer made may not be only to obtain the assent to do a particular act but also an assent to abstain from doing a
particular act which will also constitute a valid proposal. For example, A promises to pay B Rs. 100 a month provided B
does not play his 'tabla' every night. A's proposal or offer to pay Rs. 100 is done with a view to obtaining the assent of A
'not to do something.' This is a valid proposal and if it is assented to or accepted by B, it will constitute a contract.
Every contract in order to be valid should begin with a 'proposal.' The following essentials must be present to
constitute a valid proposal.
--ESSENTIALS OF A VALID PROPOSAL OR AN OFFER: HOW A VALID PROPOSAL OR OFFER IS MADE?
Rules:
1. Beyond expression of willingness, there must be something in the nature of a request.
2. Proposer cannot dictate terms.
3. An offer must be intended to create and be capable of creating legal relations. It is necessary that
the agreement must have an express or tacit reference to the legal relations between the parties. There must
be a common intention of the parties to enter into legal obligations.
ILLUSTRATION:
A promised to give B Rs.500 as a birthday present on B's birthday. A failed to fulfil his promise. B wants to file a suit against A for the
realisation of the amount. Advise B. B cannot succeed, as there was no intention on the part of A to create a legal obligation.

A mere promise, therefore, without creating any legal relation does not constitute a contract.
In a leading case on the topic, Kalai Haldar v. Sheikh (23 W.R. 217), A invited B for dinner. On B's failure to
attend, A filed a suit against B for the price of the non-consumed food. It was held that A's suit must be dismissed because
the invitation by A to B for dinner was not intended to create legal relations.
 Similarly, in Balfour v. Balfour (1919 2K.B.571), Mr. Balfour carrying on business in Ceylon promised his wife
Mrs. Balfour living in England to pay her a monthly allowance so long as she cannot come over to Ceylon for reasons of
health. It was held that Mrs. Balfour cannot enforce the obligation, as from the contract, it appears that there was no
intention to give rise to a legal obligation.
4. A mere statement of intention does not constitute a binding promise even though a person to whom
it is made acts upon it. For example, price-lists, catalogues, advertisements, window displays, tenders,
invitation by a company to the public to subscribe to its shares, etc., are merely statements of intention. They
are not regarded as offers but they are an invitation to others to make offers. Every statement that seems to
be an offer is not an offer and does not create a legal obligation.
A quotation of prices is not an offer but an invitation to a customer to offer to buy.
In Harvey v. Facey (1893 A.C.552), Harvey telephoned to Facey asking the latter to inform him whether he would
sell Bumper Hall Pen and if so, at what price. Facey informed Harvey that the lowest price was $900 without stating that
he was willing to sell at that price. Harvey telegraphed that he would buy at that price. Facey gave no reply to the
telegram. It was held that there was no contract because there was no offer from Facey to Harvey.
A invited tenders for the sale of his house but did not undertake to sell to the highest bidder. B sends a tender
expressing his willingness to pay Rs. 10,000. Similarly. C and D also convey their offers to pay Rs. 11,000 and Rs.
12,000 respectively. It will be observed here thaiA made no offer or proposal. He merely invited offers and it is B , C or
D who are making offers which A may or may not accept [Spencer v. Harding (1870-5 CP. 561)].
The test of intention is determined not by what the parties had in mind, but what the circumstances show. An
agreement to do something must not be uncertain.
5. The words used must apply to definite persons to create legal relations. The offer must be made to
a definite person.
6. The terms of offer must be certain and unambiguous.
7. An offer can be express or implied from the circumstances.
ILLUSTRATION;
No sooner a person purchases a ticket, he accepts the offer of a Railway Company to carry persons or goods from one place to another.
Stepping into a restaurant and consuming food creates an implied promise to pay. Similarly, in Upton Rural
District Council v. Powell (1942-1 All ER-220), where Powell engaged the services of Upton fire brigade believing that
he was entitled to free services, but his firm was outside the free zone, it was held that services were performed on
request by Powell and therefore, there existed an implied promise to pay for the services.
8. An offer must be communicated to an offeree. A person cannot accept an offer unless he knows of
the existence of the offer.
In Taylor v. Laird (25 L.J. Ex.329), Taylor was engaged to command Laird's ship. During the voyage, Taylor gave
up command but he helped to work the vessel home. Taylor claimed for this work from Laird. As Laird has no
opportunity of accepting or rejecting the offer of Taylor for working the ship back to port, and Laird not having come to
know of Taylor's offer, he is not bound to pay.
In Fitch v. Snodkar (1868-38 N.Y. 248), where S offered a reward to anyone who returned his lost dog, and F
brought the dog without any knowledge of the offer, it was held that F cannot succeed.
In Lalman Shukla v. Gauri Dutt (1913-11 All L.J 489), Gauri Dutt had sent his Munim Lalman to find out his
nephew who had absconded from the house. Later on, Gauri Dutt announced a reward of Rs. 501 to anyone who might
find the boy. The plaintiff Lalman found the boy and after some time claimed the reward on the ground that he had
accepted the offer of the defendant by acting in the manner prescribed by the plaintiff and performed the work for which
the reward was declared. It was held that Lalman cannot claim the reward
Proposal 19

as it was not based on any binding contract, because Lalman had no knowledge of the existence of an offer when he found the
boy.
9. An offer may be conditional but the conditions must be clearly communicated. A conditional offer lapses when the
condition is not accepted by the offeree [Pipraich Sugar Mills Lid. v. Pipraich Sugar Mills Mazdoor Union — AIR 1957 SC -
95 (102)].
10. The person making it should intend to be bound by it as soon as it is accepted by the other. He should not
reserve to himself any further act to be done on his part before he becomes bound by it. If he does so, then it is an invitation to
an offer and not an offer.
Till the offer is accepted there is no contract between the parties and the offer can be withdrawn before it is accepted
(Nutakki Seshaetanam v. Collector, Land Acquisition AIR 1992 SC 131).
TEST TO BE APPLIED TO DETERMINE WHETHER A PROPOSAL MADE IS A VALID PROPOSAL
1. Intention of the proposer — does he intend to create a legal obligation and stand to be bound by it as soon as it is
accepted by the other?
2. Is the offer actually communicated to the person to whom it is definitely intended to be made? COUNTER-OFFER
A counter-offer is a rejection of the original offer. It is a new offer. This new offer is a counter-offer.
In Hyde v. Wench (5 Beav 334), A offered to sell his farm to B for $ 1,000. B stated that he would buy for $ 950 for
which price A refused to sell. B then expressed his willingness to buy for $ 1,000. It was held here, that there is no contract,
because the offer to buy for $950 is a counter-offer. Subsequent offer to purchase it for $1,000 was a fresh offer which A was
not bound to accept. The original offer comes to an end and the counter-offer needs a fresh renewal. There is no contract until
this 'counter-proposal' is accepted by the original proposer. Party who makes a counter-proposal and subsequently changes his
mind and wishes to accept the original proposal cannot do so as the first offer lapses, and he cannot treat it as still open.
ILLUSTRATION:
A offers to sell his house to B for Rs. 25,000 and 6 writes to A that he is ready to buy for Rs. 20,000. It is a 'counter-proposal' by B which must be
accepted by the original proposer, i.e.. A, in order to be binding on A. In case of negotiation by letter there is no counter offer but merely inviting offers
[Col. D. 1. Macpherson v. M.N. Appanna & Anr. (AIR (38) 1951 SC-184)].
In cases of invitations for orders, a contract would come into being only when the invitee places an order and the invitor
accepts the same (C.V. Jasani v. M . Parashram & Ors. — AIR 1954 SC-236).
AUCTION SALES
The above principle governs 'Auction Sales.' In auction sales, an offer proceeds from the bidder and it is for the
auctioneer to accept or refuse the offer. The acceptance in auction sales is signified with the fall of the hammer. The offer can
be revoked or withdrawn at any time before such acceptance. Bidder can withdraw his offer before it is accepted.
In case of auction sales held by the Court in execution of a decree, the bidder can withdraw his offer before it is accepted
by the Court. Similarly, where the bid is subject to confirmation by higher officers, the bidder can withdraw before any such
confirmation. If the bidder dies before the bid is accepted by the Court, the bid stands revoked.
STANDING OR OPEN OFFER
An advertisement inviting tenders is not an offer in itself. It is a mere intention to invite offers. It is called a standing or
an open offer. The party making the offer has only made an open or continuing offer which he may revoke before any order
has actually been placed. It is in the same category as a quotation of prices. The advertisement that auction sale will be held on
a particular day at a particular time and place is not a proposal but mere declaration of an intention and it is an invitation to a
proposal (Harris v. Nickerson 1873 LR QB 286). A standing or open offer can be withdrawn or revoked at any time before its
acceptance. A contract arises
20 Business
Law

only when an order is placed on the tender. A tenderer can withdraw his tender before an order is placed. Each separate
order constitutes a distinct contract. A tender is an offer. It is something which invites and is communicated to notify
acceptance (Tata Cellular VyXJnion of India — AIR 1996-SC 11).
Where the goods are sold under the 'self-service system', the contract is made not when the customer selects the
goods but when the cashier receives the price.
OFFER AND AN INVITATION TO OFFER DISTINGUISHED.
Where a person making a proposal intends to bind himself by the same when it is accepted by the other, it is an
offer. He does not reserve to do some further act before being bound by his offer. On the other hand, when the person
invites offers,/or example, through price-lists, catalogues, advertisements, window displays, tenders, etc., it is an
invitation to an offer by which he reserves his right to accept or to do some further act to be bound by it. He proposes
certain terms on which he is willing to negotiate. He invites others to make an offer. It is the person approaching on the
strength of such advertisements, tenders, etc., with a proposal who is said to make an offer.
The essential element to distinguish between the two is the intention with which the statement is made. If the
person making the statement intends to be bound by it no sooner it is accepted, it is an instance of an offer. But if he
intends to do some further act before he becomes bound by it, it is an instance of an invitation to an offer.
ILLUSTRATION:
A advertises to sell his house. B. C and D offer to purchase the house at a certain price. A refuses to accept all the
offers. A can do so, as the advertisement issued by A is not an offer but an invitation to an offer. It is B, C and D who
actually offer and it is for A to accept the same or not. (Also see leading cases — Harvey v. Facey and Spencer v. Harding discussed above
under 'Essentials of a Valid Proposal.')

Communication and Revocation of Proposal

(This topic is discussed in Chapter 9.)
SUMMARY
Definition: A proposal under the Indian Contract Act is synonymous with the term 'offer' under English Law.
When a person signifies to another his willingness to do or abstain from doing something, with a view to obtaining the
assent of that other to such act or abstinence, he is said to make a proposal. A person making a proposal is called a
proposer or a promisor. Every contract in order to be valid should begin with a proposal.
Essentials: (1) There must be an expression of willingness. (2) The proposer cannot dictate terms. (3) It must be
intended to create legal relations. (4) A mere statement of intention does not constitute a binding promise. (S) A proposal
must apply to definite persons. (6) It must be signified. (7) It can be express or implied. (8) It must be communicated to
an offeree. (9) It may be conditional. (10) There must be an intent to be bound by the proposal as soon as it is accepted.
Tests to be applied: (1) There must be intention of the proposer to create a legal obligation. (2) Offer must be
actually communicated.
Counter-offer: It is a rejection of the original offer and making of a new offer. The new offer is called a counter-
offer. It needs a fresh renewal.
Auction sales: The rules which apply to the proposal govern the auction sales. An offer in auction sales can be
revoked at any time before acceptance.
Standing or open offer: It is a mere invitation to invite offers like advertisements, window displays, etc. The
person placing the tender in fact offers and it is for the person who has invited the tender to accept or refuse the offer.
Offer and invitation to offer: In an offer, a person does not reserve to do some further act before being bound by
his offer while in an invitation to offer, the person reserves his right to accept or to do some further act before being
bound by it.
TYPICAL QUESTIONS
1. Define a proposal and state the rules of a valid offer.
2. When is a valid proposal made? Distinguish it from an invitation to an offer.
3. What is a counter-offer and an open offer?