Unit-I: Formation of Contract

b. Offer / Proposal: Definition,

General/ Specific Offer
 Offer / Proposal
• The whole process of entering into a contract starts with
a proposal or an offer made by one party to another.
• To enter into an agreement such a proposal must be
accepted. 
• According to the Indian Contract Act 1872, proposal is
defined in Section 2 (a) as “when one person will signify
to another person his willingness to do or not do
something (abstain) with a view to obtain the assent of
such person to such an act or abstinence, he is said to
make a proposal or an offer.”
• some features or essentials of such an offer-

• The person making the offer/proposal is known as the

“promisor” or the “offeror”. And the person who may
accept such an offer will be the “promisee” or the
“acceptor”.
• The offeror will have to express his willingness to do or
abstain from doing an act. Only willingness is not
enough. Or simply a desire to do/not do something will
not constitute an offer.
• An offer can be positive or negative. It can be a promise
to do some act, and can also be a promise to abstain (not
do) some act/service. Both are valid offers.
 Classification of Offer

• General Offer
• A general offer is one that is made to the public at large.
It is not made any specified parties.
• So any member of the public can accept the offer and be
entitled to the rewards/consideration.
• For example you put out a reward for solving a puzzle.
So if any member of the public can accept the offer and
be entitled to the reward if he finishes the act (solves the
puzzle.)
• Specific Offer
• A specific offer, on the other hand, is only made to
specific parties, and so only they can accept the said offer
or proposal.
• They are also sometimes known as special offers.
• For example, A offers to sell his horse to B for Rs 5000/-.
Then only B can accept such an offer because it is
specific to him.
• Cross Offer
• In certain circumstances, two parties can make a cross
offer.
• This means both make an identical offer to each other at
the exact same time.
• However, such a cross offer will not amount to
acceptance of the offer in either case.
• For example, both A and B send letters to each other
offering to sell and buy A’s horse for Rs 5000/-.
• This is a cross offer, but it will be considered as
acceptable for either of them.
• Counter Offer
• There may be times when a promise will only accept
parts of an offer, and change certain terms of the offer.
• This will be a qualified acceptance.
• He will want changes or modifications in the terms of
the original offer.
• This is known as a counter offer.
• A counter offer amounts to a rejection of the original
offer.
 Essentials of a Valid Offer

• Here are some of the few essentials that make the offer
valid.
• 1] Offer must create Legal Relations
• The offer must lead to a contract that creates legal
relations and legal consequences in case of non-
performance.
• So a social contract which does not create legal relations
will not be a valid offer.
• For example a dinner invitation extended by A to B is not
a valid offer.
• 2] Offer must be Clear, not Vague
• The terms of the offer or proposal should be very
clear and definite.
• If the terms are vague or unclear, it will not
amount to a valid offer.
• For example the following offer – A offers to sell
B fruits worth Rs 5000/-.
• This is not a valid offer since what kinds of fruits
or their specific quantities are not mentioned.
• 3] Offer must be Communicated to the Offeree
• For a proposal to be completed it must be
clearly communicated to the offeree.
• No offeree can accept the proposal without knowledge
of the offer.
• The famous case study regarding this is Lalman Shukla
v. Gauri Dutt.
• It makes clear that acceptance in ignorance of the
proposal does not amount to acceptance.
• 4] Offer may be Conditional
• While acceptance cannot be conditional, an offer might be
conditional.
• The offeror can make the offer subject to any terms or
conditions he deems necessary.
• So A can offer to sell goods to B if he makes half the
payment in advance.
• Now B can accept these conditions or make a
counteroffer.
• 5] Offer cannot contain a Negative Condition
• The non-compliance of any terms of the offer cannot lead
to automatic acceptance of the offer.
• Hence it cannot say that if acceptance is not
communicated by a certain time it will be considered as
accepted.
• Example: A offers to sell his cow to B for 5000/-. If the
offer is not rejected by Monday it will be considered as
accepted. 
• This is not a valid offer.
• 6] Offer can be Specific or General
• As we saw earlier the offer can be to one or more
specific parties. Or the offer could be to the public in
general.
• 7] Offer may be Expressed or Implied
• The offeror can make an offer through words or even by
his conduct.
• An offer which is made via words, whether such words
are written or spoken (oral contract) we call it an express
offer.
• And when an offer is made through the conduct and the
actions of the offeror, it is an implied offer.
 Felthouse v Bindley (1862)
• Paul Felthouse was a builder who lived in London.
He wanted to buy a horse from his nephew, John
Felthouse.
• After a letter from the nephew concerning a
discussion about buying the horse, the uncle
replied saying,

• "If I hear no more about him, I consider the horse

mine at £30.15s.“
• The nephew did not reply.
• The court ruled that Felthouse did not have ownership of
the horse as there was no acceptance of the contract.
• Acceptance must be communicated clearly and cannot be
imposed due to silence of one of the parties.
• The uncle had no right to impose a sale through silence
whereby the contract would only fail.
 Carlill v Carbolic Smoke Ball Company [1892] 

• The Carbolic Smoke Ball Co. made a product called the

"smoke ball" and claimed it to be a cure for influenzaand a
number of other diseases. (The 1889–1890 flu pandemic was
estimated to have killed 1 million people.)
• The smoke ball was a rubber ball with a tube attached. It was
filled with carbolic acid (or phenol). The tube would be
inserted into a user's nose and squeezed at the bottom to
release the vapours. The nose would run, ostensibly flushing
out viral infections.
• The Company published advertisements in the Pall Mall
Gazette and other newspapers on November 13, 1891,
claiming that it would pay £100 (equivalent to £11,000 in
2018) to anyone who got sick with influenza after using its
product according to the instructions provided with it.
• Mrs. Louisa Elizabeth Carlill saw the advertisement,
bought one of the balls and used it three times daily for
nearly two months until she contracted the flu on 17
January 1892. She claimed £100 from the Carbolic
Smoke Ball Company.
• Mrs. Carlill brought a claim to court. The barristers
representing her argued that the advertisement and her
reliance on it was a contract between the company and
her, so the company ought to pay. The company argued it
was not a serious contract.
• The Court of Appeal unanimously rejected the company's
arguments and held that there was a fully binding contract
for £100 with Mrs. Carlill.
• Among the reasons given by the three judges were
• (1) that the advertisement was not a unilateral offer to all
the world but an offer restricted to those who acted upon
the terms contained in the advertisement
• (2) that satisfying conditions for using the smoke ball
constituted acceptance of the offer
• (3) that purchasing or merely using the smoke ball
constituted good consideration, because it was a distinct
detriment incurred at the behest of the company and,
furthermore, more people buying smoke balls by relying
on the advertisement was a clear benefit to Carbolic
• (4) The company's claim that £1000 was deposited at the
Alliance Bank showed the serious intention to be legally
bound. 
 Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953]

The defendant ran a self-service shop in which non-

prescription drugs and medicines, many of which were
listed in the Poisons List provided in the Pharmacy and
Poisons Act 1933, were sold.
These items were displayed in open shelves from which they
could be selected by the customer, placed in a shopping
basket, and taken to the till where they would be paid for.
The till was operated by a registered pharmacist.
However, the claimant brought proceedings against the
defendant for breach of section 18(1) of the Pharmacy and
Poisons Act 1933, which requires the supervision of a
registered pharmacist for the sale of any item in the Poisons
List.
Issue
• The question was whether the contract of sale was
concluded
• when the customer selected the product from the shelves
(in which case the defendant was in breach of the Act due
to the lack of supervision at this point) or
• when the items were paid for (in which case there was no
breach due to the presence of the pharmacist at the till).
• Held
• The Court of Appeal held that the defendant was not in
breach of the Act, as the contract was completed on
payment under the supervision of the pharmacist.
• The display of the goods on the shelves were not an offer
which was accepted when the customer selected the item;
rather, the proper construction was that the customer
made an offer to the cashier upon arriving at the till,
which was accepted when payment was taken.
• This analysis was supported by the fact that the customer
would have been free to return any of the items to the
shelves before a payment had been made.
 Lalman Shukla vs. Gauri Datt

• In the January, 1913 defendant’s nephew has absconded from his house
and in order to find his nephew he sent all his servants to different
parts, so that he can be traced at his position.
• Plaintiff was among those several servants who were sent for the search
of master’s child. He was sent to Hardwar from Cawnpore and there he
was able to trace the child and for this accomplishment he was awarded
with two sovereigns and Rs. 20 when he returned to Cawnpore.
• In the meantime when plaintiff was at the search of child defendant
issued a hand bill offering reward of Rs. 501 to the person who traces
the missing child and defendant was totally ignorant of this reward.
• Later on after 6 months of this incident plaintiff brought a suit against
his master claiming Rs. 499 stating that the master had promised to the
person who will find the missing child a reward. He alleged his master
of not providing reward for the specific performance of his promise.
• Petitioners
• The petitioners strongly contended that performance
of an act is sufficient for providing rewards attached
with such performance. They stated that it is
immaterial that whether person performing the act
has knowledge of rewards associated with it or not.
• He also argued that § 8 of the Indian Contracts Act,
1872 states that performance of a condition of
proposal is an acceptance of proposal and in the
present case the condition was that the person who
will find the missing child will be rewarded and
thus as per this provision he has fulfilled the
condition, hence plaintiff is entitled to claim reward.
• Respondents:
• It was contended by the respondents that there must be
an acceptance to offer in order to convert it into a
contract and assent is the basic essential in order to
constitute a contract. At the time he was tracing the boy
he was unaware about this reward associated with child,
so without knowledge how can it create a contract
between parties.
• It was also argued by them that at the time of tracing the
missing child he was acting as a servant and thus
fulfilling the responsibilities and obligations for which
he was sent to Hardwar from Cawnpore. 
• Judgment
• It was held by the Honourable Court that
knowledge and assent about a proposal is must in
order to convert a proposal into enforceable
agreement and in the present case plaintiff was
neither aware nor has assent about the particular
act. It was also said by the Honourable Judge that
plaintiff was merely fulfilling his obligations at
the time when he was tracing the boy.
 Balfour v Balfour [1919] 

• Facts of the Case

• The Plaintiff and the Defendant were a married couple.  The
Defendant husband and the Plaintiff wife lived in Ceylon where
the Defendant worked. 
• In 1915, while the Defendant was on leave, the couple
returned to England. 
• When it was time to return to Ceylon, the Plaintiff was advised
not to return because of her health. 
• Prior to the Defendant returning, he promised to send the
Plaintiff £30 per month as support.  The parties’ relationship
deteriorated and the parties began living apart. 
• The Plaintiff brings suit to enforce the Defendant’s promise to
pay her £30 per month.  The lower court found the parties’
agreement constituted a contract.
• Questions to be answered
• The case has raised two important questions.
• 1. Is it necessary that both the parties intend
that an agreement be legally binding so as to be
an enforceable contract?
• 2. What are the circumstances in which a court
can decline to enforce an agreement between
spouses?
• Held. The court first recognized that certain forms of
agreements do not reach the status of a contract.  An
agreement between a husband and wife is often times
such a form of agreement.  In such agreements, one party
is given a certain sum of money on a daily, weekly,
monthly basis.  This agreement is sometimes termed an
allowance. 
• However, these agreements are not contracts because the
“parties did not intend that they should be attended by
legal consequences.”  One reason the court is hesitant to
treat these agreements as contracts, is that there would
not be enough courts to handle the volume of cases. 
Thus, here, the husband’s promise did not rise to the level
of a contract.