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Proposal under Indian contract act and difference between proposal and invitation to treat

Proposal under the Indian contract act

Section 2 (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.

In Chitty on Contracts the word proposal has been defined as:

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 accepted by the person to whom it is addressed.

The language of the definition in the act appears to confine the proposal to an offer to be bound by a promise upon receiving the assent from the offeree or on the offeree fulfilling or undertaking to fulfill certain conditions. (Deep Chandra v Ruknuddaula Shamsher Jung Nawab Sajjad Ali khan AIR 1951 all).
To have made a proposal a person must have:
  1. Signified to another his willingness to do or to abstain from doing anything
  2. Has done so with a view to obtaining the assent of that other to such act or abstinence.

The objective test of intention

The test of a person’s intention in making a proposal is an objective one that is as it would be reasonably construed by a person in the position of the offeree. A person can be said to have made an offer though he did not subjectively have the intention to make one or even if it has been made under a mistake. (Ot Africa line ltd v Vickers pic). If A’s conduct is such as to induce B to reasonably believe that A had intention.

It has been suggested that for reason of convenience and facility of proof of agreement it should make no difference whether B’s state of mind amounts to knowledge of or merely to indifference to the truth.

Proposal statement and invitation to treat

A proposal must be distinguished from a mere statement of intention which is not intended to require acceptance the latter may be merely a statement of intention or an invitation to make an offer or to do business if it is not intended to be binding it is an invitation to treat.

The distinction between an offer and invitation to treat depends upon the intention of the person making it the intention that he would be bound no sooner the offeree signifies his assent to it. It must require nothing more to convert it into a promise except acceptance. It manifests a final declaration of readiness to undertake an obligation upon certain specified terms and conditions leaving the offeree the option of acceptance or refusal. So long as one of the parties to the transaction could back out of it at his choice there can be no binding or concluded contract between the parties although they have an agreement on material terms.

Where a person intends actually or objectively as stated above to be bound without further negotiation by a simple acceptance of his terms his expression will be an offer or proposal. An offer is distinct from statement shorts of being an offer made during negotiations an expression of intention and an invitation to treat stating the price in response to the request or inquiry is not an offer. (Harvey v facey).

Advertisement issued by a housing development authority offering a scheme is an invitation to offer. (Ghaziabad develop. Authority v Union of India).

A voluntary retirement scheme offered by an employer is not a proposal but merely an invitation to treat the application made by employees constitutes the proposal to be accepted by the employer. ( Bank of India v/s OP Swaranakar)

Advertisement and display of goods
Neither quotation of price nor a letter asking for quotation or terms are offers they are invitations for offers. Where orders are invited a contract comes into being only when the invitee places an order and the inviter acceptances the same. Advertisement of goods for sale in the newspaper or in magazines are not offer nor are display at the shop window of goods with market price or on the the shelves of self-service shop.

(Pharmaceutical Society of Great Britain v/s Boots Cash Chemist Ltd 1953 QB). Or an indication of the price of petrol at a petrol pump or advertisement announcing schemes for the purchase of land plot or house or special offers in catalogs or brochures as a general rule these are not offers but an invitation for making offers.

All display and advertisement may not always be so. A notice at the entrance of an automatic car park (the transaction being effected through a machine) advertisement of reward for lost articles advertisement promising to pay money to a person who used a product and caught influenza (carlill v carbolic smoke ball company 1893). Have been held to be offers the test lies in the intention of the maker the statement is an offer if the person making the statement shows the intention to be bound immediately or acceptance.

Auction
An auctioneer’s request for bids is not an offer but an invitation to the customers to bid the bid constitutes the offer which is acceptance by the auctioneer in a customary manner usually by the fall of the hammer the bidder may withdraw the bid until it is accepted. An advertisement announcing that an auction will be held on a certain day is an invitation to treat and does not bind the auctioneer to sell the goods nor does it make him liable on contract to indemnify the persons who have incurred expense in order to attend the sale (Harris v/s Nickerson).

Tender
An invitation for tender for the supply of goods or for execution of work is not an offer. It is a mere attempt to ascertain whether an offer can be obtained within such a margin as a employer is willing to adopt it is an offer to negotiate an offer to recive an offers. (SP Consolidated Engineering Co. Ltd V Union of India1966).

Even where the receiver price is fixed. (Anil Kumar Srivastava v/s State of Uttar Pradesh). The mere fact that a person makes a highest tender cannot entitle the tender to claim acceptance but if the person inviting the tender states that the highest offer to buy is accepted the invitation to tender is regarded as an offer or an invitation to submit offers with an undertaking to accept the highest offer and the contract will be concluded as soon as the highest offer to buy is communicated.

Tender and standing offer

A tender for supply of goods as may be required without the quantity being specified is not an offer which may be accepted generally so as to form a binding contract it is a continuing offer which is accepted from time to time whenever an order is given for any of the goods specified in the tender. A writing by which a agrees to supply coal to b at certain price and upto a stated quantity or un any quantity which may be required for a period of 12 months is not a contract unless b binds himself to take certain quantity but a mere continuing offer which may be accepted by b from time to time by ordering goods upon terms of the offer. In such a case each order given by b is acceptance of the offer and a can withdraw the offer or to use the phraseology of the act revoke the proposal at my time before its acceptance by an order from b.

Proposal must be certain

Since a contract is concluded by a mere acceptance of an offer the terms of the intended or proposed agreement may be indicated with sufficient definiteness In the offer itself. The terms of the offer must be therefore be definite and certain. A proposal is certain if under the general rule of construction or otherwise the intention of the parties can be ascertained and if it can be rendered certain as by reference to something certain. (pipraich sugar mills lyd v pipraich sugar mills mazdoor union 1957 sc).

Proposal by whom

The proposal may be entered from a third person who suggests to the prospective parties the terms of an agreement in such a case a contract is formed as soon as both parties have acted on the agreement even though there has until that moment been no direct communication between them. (shankil pier ltd v detel products ltd 1951).

Communicated.
The word signifies in the definition indicates that the offer must be communicate to the person to whom it is made.

Intention to create legal relation.
In order that a proposal may be binding by acceptance it must be such as can be reasonably regarded as having been made in contemplation of producing legal consequences. An agreement is not a contract without an intention of creating legal relation even though supported by consideration. (chitty on contracts).

In Balfour v Balfour a husband a husband staying in Ceylon promised to pay gbp 30 a month to his sick wife she was unable to enforce it inter alia because the parties did not intend it to legally binding but this did not apply where the husband an wife were separated or were about to do so.

Thus in merritt v merritt an estranged husband promise to pay gbp 40 a month to his wife and told her to pay out of it the outstanding mortgage debt on the matrimonial house the relevant papers of which he handed over to her, he agreed to transfer the house to her sole ownership after the mortgage was paid off after the mortgage was paid off he reduced the monthly allowance and refused to transfer the house the agreement was held binding in all these cases it was observed that the court looks at the situation and asks itself whether the arrangement was intended to be binding.`

End-Notes:
  1. For more further reading see POLLOCK AND MULLA the Indian contract act 1972 14th edition LexisNexis

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