Offer and Proposal — Communication, Revocation, Lapse

Every contract begins with a proposal. Section 2(a) of the Indian Contract Act, 1872 defines a proposal as the signification by one person to another of his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence. Sections 3 to 6 then supply the operative machinery — how a proposal is communicated, when its communication is complete, when it may be revoked, and when it lapses without acceptance. Without these provisions the rest of the Act is unworkable: every later doctrine — acceptance, consideration, capacity, free consent — operates on a proposal that has first been brought into existence and kept alive long enough to be accepted.

This chapter takes the offer-and-proposal machinery section by section. It then sets out the doctrinal distinctions the candidate must keep in mind — offer versus invitation to treat, specific versus general offer, offer versus standing offer, cross offers, counter offers — and closes with the leading authorities and the most frequent examination angles. The chapter sits early in our broader notes on the Indian Contract Act and presupposes the definitional vocabulary established in our chapter on the definitions and essentials of a valid contract under Section 2.

Statutory anchor — Sections 2(a) and 3 to 6 ICA

Section 2(a) supplies the definition. Section 3 deals with the modes of communication and revocation: "The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it."

Section 4 fixes the moment at which the communications are complete. "The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made." The same section then sets out parallel rules for acceptance and revocation. Section 5 governs revocation: "A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards." Section 6 catalogues the modes by which a proposal lapses without acceptance: notice of revocation, lapse of time, failure to fulfil a condition precedent, or death or insanity of the proposer.

These four sections are short. The doctrinal weight they bear is large. The common law had developed each rule case by case over two centuries; the Indian codifier compressed the result into a few hundred words. The compression has produced occasional ambiguity, but the architecture — proposal, communication, acceptance, revocation, lapse — has remained stable since 1872.

Ingredients of a valid proposal

For a proposal to satisfy Section 2(a), four ingredients must be present.

1. Signification by one person to another. The proposal must be communicated. A purely mental willingness, however firm, is not a proposal until it is signified to another person. Section 3 then expands the modes — the signification may be by act or omission, express or implied, in writing, by spoken word, by conduct, or by any other means by which the proposer intends to communicate or the means in fact have the effect of communicating.
2. Willingness to do or abstain. The willingness may be to perform a positive act (deliver goods, pay money, render services) or to abstain from a positive act (forbear from suing, refrain from competition, withhold disclosure). Both are valid subjects of a proposal.
3. With a view to obtaining the assent of the other. The proposer must intend that on acceptance he will be bound. A statement made for any other purpose — to canvass opinion, to invite negotiation, to display goods for sale — is not a proposal. This is where the doctrine of invitation to treat becomes relevant.
4. Certainty. Although Section 2(a) does not in terms require certainty, the courts have read the requirement into the section. A vague, ambiguous or indefinite proposal cannot ripen into a binding promise on acceptance, because the resulting agreement would be uncertain. The Supreme Court in Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union, AIR 1957 SC 95, held that to constitute a valid promise, and therefore a valid contract, an offer must be certain so that the rights and obligations of the parties can be exactly fixed.

Communication of the proposal — Section 4

Section 4 fixes the moment of communication. "The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made." Two consequences follow. First, a proposal that has not reached the offeree's knowledge cannot be accepted, because acceptance presupposes communication. Second, the place where the proposal is received may be relevant to questions of jurisdiction, since the formation of agreement is connected to the place at which acceptance is received.

The leading Indian authority on the requirement of communication is the 1913 handbill-reward case decided by the Allahabad High Court and reported at 11 ALJ 489. A wealthy merchant's young nephew had absconded from home in Kanpur. The merchant gave money to his servants and sent them to different places to find the boy. After the servants had left, the merchant issued handbills offering a reward of Rs 501 to anyone who might trace the boy. One of the servants traced the boy to Rishikesh and brought him home. He later sued for the reward, having ceased his employment. The court ruled that the handbill was a unilateral offer made to the world at large, but that an offer can be accepted — and a meeting of minds reached — only if the person concerned has knowledge of the offer at the time he performs the act of acceptance. As the servant did not know of the handbill at the time he set out on the search, his act of finding the boy could not amount to acceptance of an offer he did not know existed.

The decision is the cornerstone of the offer-and-acceptance machinery. It establishes two propositions: that knowledge of the offer is a condition of acceptance, and that an act done in performance of an antecedent duty cannot serve as consideration for a fresh promise.

Specific and general offers

A proposal may be made to a specific person or to the world at large. A specific offer can be accepted only by the named offeree; a general offer may be accepted by anyone who, with knowledge of the offer, performs the conditions specified.

The classic English authority on the general offer is Carlill v. Carbolic Smoke Ball Co., [1893] 1 QB 256. The Carbolic Smoke Ball Company advertised that it would pay £100 to anyone who used its smoke ball as directed and still contracted influenza. Mrs Carlill bought a smoke ball, used it as directed for two months, and still contracted influenza. The company refused to pay, arguing that the advertisement was a vague puff, not an offer capable of acceptance, and that no contract had been formed because Mrs Carlill had not communicated her acceptance. The Court of Appeal held that the advertisement was a unilateral offer, that it had been accepted by performance of the conditions, and that communication of acceptance was unnecessary in cases of unilateral offers — performance was itself the acceptance. The decision has been received into Indian law through Sections 3, 8 and 9 of the Indian Contract Act and is the foundation of the law of unilateral contracts.

The 1913 handbill-reward case applied the same principle in India, with one critical refinement: a general offer can be accepted only by a person who has knowledge of it at the time of performance.

Offer versus invitation to treat

Not every statement that looks like an offer is in fact a proposal under Section 2(a). The common law has long recognised a category of statements that are mere invitations to make offers — invitations to treat — which do not by themselves bind the maker. The classical illustrations are the display of goods in a shop window with a price tag, the publication of a price list or catalogue, the issue of a prospectus inviting subscriptions, and a notice inviting tenders.

The English decision in Pharmaceutical Society of Great Britain v. Boots Cash Chemists, [1953] 1 QB 401, held that the display of goods in a self-service store with prices marked is an invitation to treat; the customer's selection and presentation at the cash desk is the offer; the cashier's acceptance of payment is the acceptance. The reasoning has been adopted in Indian law for the analysis of contracts formed in retail stores and, by analogy, on websites and online marketplaces.

The leading English decision on price-quotation is Harvey v. Facey, [1893] AC 552. Harvey telegraphed Facey: "Will you sell us Bumper Hall Pen? Telegraph lowest cash price." Facey replied: "Lowest price for Bumper Hall Pen, £900." Harvey then telegraphed: "We agree to buy Bumper Hall Pen for £900 asked by you." The Privy Council held that no contract had been formed because Facey's reply was a mere quotation of price, not an offer to sell — Harvey's purported acceptance was therefore in fact a fresh offer, which Facey had never accepted. The decision is the standard authority on the proposition that a quotation of price, without more, is not an offer.

Tenders, standing offers and auctions

Tender practice raises distinctive questions. An invitation to tender is, in general, an invitation to treat — the tenderer's submission is the offer, and the awarding authority's acceptance is the acceptance that completes the contract. But in some tenders, particularly tenders for indeterminate quantities of goods to be supplied as and when required, the tender is treated as a standing offer that may be accepted by individual orders placed during the tender period.

The Supreme Court in Union of India v. Maddala Thanthaiah, AIR 1966 SC 1724, held that where a tender for the supply of jaggery to the Railways was accepted by the Railways, the contract that came into being was of the standing-offer type — each order placed during the tender period was a separate act of acceptance creating a separate contract for the quantity ordered, and the Railways were entitled to cancel the tender at any time before further orders were placed. The English authority to the same effect is Great Northern Railway Co. v. Witham, (1873) LR 9 CP 16.

Auctions raise their own analytical questions. An auctioneer's call for bids is an invitation to treat; each bid is an offer; the fall of the hammer is the acceptance. Until the hammer falls, no contract is formed and the bidder may withdraw his bid. The principle was articulated in the early English decision in Payne v. Cave (1789) 3 TR 148, where the bidder's withdrawal before the fall of the hammer was held effective. The Indian Contract Act gives statutory effect to the same principle through Sections 5 and 6.

Revocation of proposal — Section 5

Section 5 is short and consequential: "A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards." The proposer's power to revoke is therefore wide, but it is bounded in time by the moment when acceptance is complete as against the proposer.

That moment is fixed by Section 4. The communication of acceptance is complete as against the proposer when it is put in a course of transmission to him so as to be out of the power of the acceptor; as against the acceptor when it comes to the knowledge of the proposer. The asymmetry is deliberate: the proposer is bound from the moment the acceptor places the acceptance beyond his own control, but the acceptor remains free until the proposer actually receives it. The acceptor therefore has a window in which he can revoke his acceptance by a faster-moving message.

For the modes by which the acceptor's revocation may operate alongside the proposer's, see our chapter on how acceptance is communicated and withdrawn.

Lapse of proposal — Section 6

Section 6 sets out the modes by which a proposal lapses without acceptance:

1. By notice of revocation by the proposer. The proposer may revoke at any time before acceptance is complete as against him under Section 5. The notice of revocation is itself a communication and is governed by Sections 3 and 4 — it is complete as against the proposer when it is put into a course of transmission, and as against the offeree when it comes to his knowledge.
2. By the lapse of the time prescribed in the proposal, or, if no time is prescribed, by the lapse of a reasonable time. A proposal that fixes a deadline lapses on expiry. A proposal that fixes none lapses on expiry of a reasonable time, the reasonableness being judged by the nature of the proposal, the trade practice, and the surrounding circumstances.
3. By failure of the acceptor to fulfil a condition precedent to acceptance. Where the proposal stipulates that acceptance is to be in a particular form, or accompanied by a particular act, failure to comply prevents the proposal from being accepted at all.
4. By death or insanity of the proposer, if the fact comes to the knowledge of the acceptor before acceptance. The qualification — knowledge by the acceptor — is important. If the acceptor is unaware of the proposer's death and accepts in good faith, the contract is concluded; if he is aware, the proposal has lapsed and the acceptance is ineffective.

The four modes of Section 6 are exhaustive in the sense that the Act does not recognise any other automatic mode of lapse. Rejection by the offeree also extinguishes the proposal — though Section 6 does not in terms list it — because once an offer is rejected, it cannot be revived by a subsequent purported acceptance.

Counter offer and the rejection rule

A counter offer is a purported acceptance that varies the terms of the original proposal. In law, it is not an acceptance at all but a fresh proposal — and its consequence is the destruction of the original proposal. The principle, drawn from the English decision in Hyde v. Wrench, (1840) 3 Beav 334, is that a counter offer kills the original offer; the original offer cannot afterwards be revived by a purported acceptance from the same person. The Indian Act gives statutory effect to the same principle through Sections 7 and 9 read with the definition of acceptance in Section 2(b).

A request for information, by contrast, does not amount to a counter offer and does not destroy the original proposal. Stevenson, Jaques and Co. v. McLean, (1880) 5 QBD 346, drew the line: the buyer's enquiry as to whether delivery could be staggered was held a mere request for information, not a counter offer, and the original proposal therefore remained open for acceptance.

Cross offers and identical offers

Where two parties simultaneously make identical offers to each other, neither having knowledge of the other's offer, no contract is formed. The English decision in Tinn v. Hoffman & Co., (1873) 29 LT 271, held that two letters crossing in the post each offering the same sale at the same price did not produce a contract — there was no acceptance, only two coexisting offers. The principle is consistent with the Section 4 requirement that communication is the gateway to acceptance: each offeror must know of the other's offer before he can accept it.

Silence as acceptance

An offeror cannot impose acceptance by stipulating that silence will count as assent. The English decision in Felthouse v. Bindley, (1862) 142 ER 1037, established the rule: the uncle's letter to his nephew saying "if I hear no more about him, I consider the horse mine" did not produce a contract when the nephew failed to reply, because acceptance must be communicated and silence cannot ordinarily be treated as communication. The Indian Contract Act gives statutory effect to the same principle through Section 4 — communication of acceptance is complete on a positive transmission, not on the absence of dissent. The implication of allowing silence to count as acceptance would be grave: anyone could be forced into agreements by being swamped with offers.

Leading Indian authorities

Beyond the 1913 handbill-reward case, several Indian decisions have shaped the law on offer and proposal.

Bhagwandas Goverdhandas Kedia v. M/s Girdharlal Purshottamdas and Co., AIR 1966 SC 543, held that the postal-rule variation in Section 4 — that acceptance is complete as against the proposer when it is put in a course of transmission — applies only to non-instantaneous communications. Where parties contract by telephone or any other instantaneous medium, the contract is made at the place where the acceptance is received by the proposer. The reasoning has been extended to telex, fax, and now to email and other electronic communications.

Sekhsaria Exports v. Union of India, AIR 2004 Bom 35, restated the cardinal principle that an acceptance of an offer ought to be notified by the offeree to the offeror in order that the two minds may come together; until communicated, the contract cannot be said to be concluded. The tenderer does not become bound merely by submitting his bid unless it is accepted in the same terms on which it was made.

Maa Binda Express Carrier v. Northeast Frontier Railway, (2014) 3 SCC 760, held that the award of a contract pursuant to a tender is essentially a commercial transaction to be determined on the basis of considerations relevant to the commercial decision. The terms of the tender invitation are not open to judicial scrutiny unless they have been tailored to benefit a particular tenderer or class of tenderers, or there has been unfair treatment in violation of public interest. Where the eventual contract is concluded but later disputed, the remedies that follow on breach are mapped in our chapter on remedies for breach.

Distinguishing offer from cognate concepts

The candidate must distinguish offer from four cognate concepts:

Offer versus invitation to treat. An offer is a final expression of willingness to be bound on acceptance. An invitation to treat is a preliminary statement inviting offers, which the maker may accept or reject. Display of goods in a shop window, advertisements (in general), price lists, prospectuses, and tender invitations are usually invitations to treat. Carlill is the exception that proves the rule — an advertisement that, on its proper construction, is a definite undertaking to be bound on performance is an offer.

Offer versus standing offer. A standing offer (as in tender for indefinite quantities) is a continuing offer that the offeree may accept by individual orders during the tender period. The acceptance of the tender does not in itself produce a contract for the entire quantity; each order is a separate acceptance creating a separate contract.

Offer versus counter offer. A counter offer purports to accept on terms different from the original offer. It is not an acceptance but a fresh offer, and it destroys the original.

Offer versus declaration of intention. A statement that one intends to do something at a future time, without inviting assent that would convert the intention into a binding promise, is a declaration of intention, not an offer. Examples include announcements of an auction (the announcer is not bound to hold the auction), promises to consider a person for a job, or social statements of intent. Where the supposed offer is in truth conditional on a future uncertain event, the more accurate analytical home is the chapter on contingent contracts under Sections 31 to 36.

Exam-angle takeaways

Four propositions about offer and proposal should be at the front of memory.

First, the four ingredients of a valid proposal under Section 2(a) — signification, willingness to do or abstain, intention to obtain assent, and certainty. The intention element is what distinguishes an offer from an invitation to treat. The certainty element is what distinguishes an offer from a vague statement of expectation; an uncertain agreement, even on otherwise sound foundations, falls within the catalogue of void agreements under Sections 24 to 30.

Second, the asymmetric rule on completion of communication in Section 4. Acceptance is complete as against the proposer when put in a course of transmission; as against the acceptor when received by the proposer. This asymmetry creates the window in which the proposer may be bound while the acceptor is still free.

Third, the four modes of lapse in Section 6 — revocation, time, condition precedent, death or insanity with knowledge — plus the unwritten fifth mode of rejection by counter offer or otherwise. These five exhaust the routes by which a proposal ceases to be capable of acceptance.

Fourth, the leading authorities — the 1913 handbill-reward case on knowledge of the offer, Carlill on general offers and unilateral contracts, Harvey v. Facey on quotation versus offer, the standing-offer line of cases on tenders, and Bhagwandas Kedia on instantaneous communications. Each of these authorities tests a different limb of the offer-and-proposal machinery. The same machinery resurfaces in modern fact-patterns examined in our chapter on e-contracts and standard form contracts, where click-wrap and browse-wrap arrangements are analysed in offer-and-acceptance terms.

The chapters that follow build on this foundation. The acceptance machinery — modes, communication, revocation — is examined in our chapter on acceptance — communication, modes, revocation. The consideration that must accompany the accepted promise is examined in our chapter on consideration. The rules on capacity in our chapter on capacity to contract. The vitiating factors that may render an apparently valid offer-and-acceptance voidable are examined in our chapter on free consent. Together, these chapters form the formation half of the Indian Contract Act; without them, the performance and discharge halves cannot be applied.

Frequently asked questions

What is the difference between an offer and an invitation to treat under the Indian Contract Act?

An offer under Section 2(a) is a final expression of willingness to be bound on acceptance. An invitation to treat is a preliminary statement inviting offers, which the maker may accept or reject. The classical illustrations of invitations to treat are the display of goods in a shop window with a price tag, the publication of a price list or catalogue, the issue of a prospectus, and a notice inviting tenders. The English decision in Pharmaceutical Society v. Boots and the Privy Council decision in Harvey v. Facey are the leading authorities; both have been received into Indian law. The exception is the unilateral offer in advertisements, as in Carlill v. Carbolic Smoke Ball Co., where a definite undertaking to be bound on performance is treated as an offer to the world.

Can an offer be accepted without knowledge of it?

No. The 1913 handbill-reward case decided by the Allahabad High Court is the leading Indian authority. A servant who had been sent on a search before the reward handbill was issued could not later claim the reward, because acceptance requires consensus of minds and consensus requires that the offeree know of the offer at the time he performs the act of acceptance. The principle is consistent with Section 4 of the Indian Contract Act, which fixes the moment of communication of a proposal at the moment it comes to the knowledge of the offeree, and with Section 2(b), which defines acceptance as the signification of assent — assent being impossible without knowledge of what is being assented to.

When is the communication of acceptance complete under Section 4?

Section 4 applies an asymmetric rule. The communication of acceptance is complete as against the proposer when it is put in a course of transmission to him so as to be out of the power of the acceptor; as against the acceptor when it comes to the knowledge of the proposer. This means the proposer is bound from the moment the acceptor posts the letter or transmits the message; the acceptor remains free until the proposer actually receives it. The Supreme Court in Bhagwandas Kedia (1966) held that the postal-rule variation does not apply to instantaneous communications such as telephone, telex and (by extension) email — for these, the contract is made at the place where acceptance is received by the proposer.

Can silence amount to acceptance of an offer?

Generally no. The leading authority is Felthouse v. Bindley (1862), where an uncle's letter saying that if he heard no more about a horse he would consider it bought did not produce a contract on the nephew's silence. The principle is consistent with Section 4 of the Indian Contract Act, which requires positive communication of acceptance. The exception is where a course of dealing or trade usage between the parties indicates that silence in particular circumstances is to be taken as assent — but the burden of establishing such a course of dealing is heavy. The general rule remains that the offeror cannot impose acceptance on the offeree by stipulating that silence will count as assent.

What is the difference between an offer and a standing offer in tender cases?

An ordinary offer, on acceptance, produces a single contract. A standing offer, accepted in respect of a class of goods to be supplied as and when required, produces only a continuing offer — each individual order placed during the tender period is a separate acceptance creating a separate contract for the quantity ordered. The Supreme Court in Union of India v. Maddala Thanthaiah (1966) and the English authority in Great Northern Railway v. Witham are the leading cases. A standing offer may be revoked at any time as to future orders, provided no order has yet been placed; once an order is placed, the contract for that order is concluded and cannot be unilaterally cancelled.