How can an offer be made, revoked or accepted? What rules apply when an offer is made through post or over the telephone?

An offer, or "proposal" as defined in Indian law, is the starting point for an agreement. It is made when one person signifies to another their willingness to do or abstain from doing something, with a view to obtaining the assent of that other to such act or abstinence. The person making the proposal is the "promisor" or "offerer", and the person to whom it is made is the "promisee" or "offeree".

Essential conditions for a valid offer (proposal) include:

• Expression of Willingness and Intent: The offeror must signify their willingness to do or abstain from doing something. This must be done with a view to obtaining the other's assent. A casual inquiry is not a proposal.

• Communication: The proposal must be communicated to the other party. According to Section 3, communication is deemed to be made by any act or omission by which the party intends to communicate or which has the effect of communicating it. Section 4 states that communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. If an offer has not been communicated, acting according to its terms in ignorance of the offer does not amount to acceptance.

• Certainty of Terms: The terms of the offer must be certain and not vague. An agreement to agree in the future is not a contract.

• Distinguished from Invitation to Treat: An offer must be distinguished from an invitation to treat. An offer is a final expression of willingness to be bound, while an invitation to treat is a proposal of terms on which one is willing to negotiate, inviting the other party to make an offer. Examples of invitations to treat include price lists, catalogues, advertisements for tenders/bids, and display of goods with price tags. A tender is an invitation to offer; the bid is the offer.

• Form of Offer: A valid proposal may be made by words (express) or by conduct (implied). Examples of implied offers include stepping into a taxi or consuming eatables at a restaurant. A bid at an auction is an implied offer.

• General or Specific: An offer may be made to a particular person or a group, or even to the entire world (general offer). In cases of general offers, performance of the condition is usually acceptance without notification.

How an Offer is Accepted

A proposal, when accepted, becomes a promise. Acceptance occurs when the person to whom the proposal is made signifies their assent thereto. Acceptance is the assent given to a proposal.

Essential requirements of a valid acceptance are:

• Communication of Acceptance: Acceptance must be communicated by the offeree to the offeror. There must be an external manifestation or overt act of acceptance; a mere mental determination or intent is not sufficient. Communication must be made by the offeree or their authorized agent. Communication to a stranger is ineffective. Silence generally does not constitute acceptance, although in certain circumstances, silence coupled with a positive act by the offeree might, or a duty to communicate rejection might be implied.

• Absolute and Unqualified: Acceptance must be absolute and unqualified, meaning it must be without any qualification or condition. There must be an "ad idem" or "concurrence of mind", agreeing on the same thing in the same sense and at the same time. Acceptance must be total; partial acceptance is not valid.

• Manner of Acceptance: Acceptance should be made in some usual and reasonable manner, unless the proposal prescribes a specific manner. If a manner is prescribed and acceptance is in a different manner, the offeror must insist on the prescribed manner within a reasonable time; if they fail to do so, the contract is concluded.

• Must be in Response to the Offer: Acceptance must be given to a known offer. Acting in ignorance of an offer does not amount to acceptance.

• Must be made while the offer is Subsisting: Acceptance must be made while the offer is still in force. Acceptance after an offer has lapsed or been revoked is ineffective.

• Form of Acceptance: Acceptance can be express (words) or implied (conduct). Performance of the conditions of a proposal is an acceptance, particularly in cases of general offers (unilateral contracts). In such cases, communication of acceptance is usually not necessary.

• Counter-proposal: An acceptance with a variation or introduction of new terms is not acceptance; it is a counter-proposal, which puts an end to the original offer. A mere inquiry into the terms is not a counter-proposal.

• Provisional Acceptance: An acceptance subject to final approval is provisional and does not bind until final approval is given.

How an Offer is Revoked (Lapses)

The Contract Act gives the proposer the option of revoking their proposal before a completed contract comes into existence. Section 6 lays down the circumstances when an offer lapses or is revoked:

• By Communication of Notice of Revocation: By the offeror communicating a notice of revocation to the other party. According to Section 5, a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. Communication of revocation is complete as against the person who makes it when put into transmission, and as against the person to whom it is made when it comes to their knowledge.

• By Lapse of Time: By the lapse of the time prescribed in the proposal for its acceptance, or if no time is prescribed, by the lapse of a reasonable time without communication of acceptance. What constitutes a reasonable time depends on the circumstances.

• By Failure to Fulfil a Condition Precedent: By the failure of the acceptor to fulfil a condition precedent to acceptance.

• By Death or Insanity of Offeror: By the death or insanity of the proposer, if the fact comes to the knowledge of the acceptor before acceptance.

An offer can be withdrawn before it is accepted. A revocation is effective only when it is brought to the knowledge of the person to whom the offer is made. Notice of revocation can sometimes be communicated indirectly through a third party, if the offeree learns of it reliably. Revocation of general offers can be done through the same media used for the offer. A bid at an auction is a mere offer that can be retracted before the hammer is down. A tender can generally be withdrawn before the order is placed, unless there is consideration not to withdraw or a statutory prohibition.

Rules for Communication by Post

The specific rules for communication when parties are at a distance and contracting through post.

1.     Communication of Offer: The communication of a proposal sent by post is complete when the letter comes to the knowledge of the person to whom it is made, i.e., when the letter is received by the offeree.

2.     Communication of Acceptance: Section 4 lays down a peculiar rule for postal acceptance.

a.     As against the Proposer: The communication of acceptance is complete when it is put into a course of transmission to him, so as to be out of the power of the acceptor. The proposer becomes bound immediately upon the posting of the letter (correctly addressed), even if it is delayed or lost in transit and never reaches them. This is based on commercial expediency but is noted to make the offeror's position "miserable". The contract is considered made at the place where the letter of acceptance is posted.

b.     As against the Acceptor: The communication of acceptance is complete when it comes to the knowledge of the proposer, i.e., when the letter is received by the offeror. The acceptor is not bound until the letter reaches the offeror.

3.     Revocation of Offer: A proposal sent by post may be revoked at any time before or at the moment when the letter of acceptance is posted by the acceptor, but not afterwards. The communication of revocation is complete as against the offeror when dispatched and as against the offeree when it reaches them. For revocation to be effective, it must reach the offeree before they mail their acceptance. If the revocation letter and acceptance letter cross in the post, and acceptance was posted first, the revocation is ineffective.

4.     Revocation of Acceptance: An acceptance sent by post may be revoked at any time before or at the moment when the letter communicating it reaches the offeror, but not afterwards. The acceptor can cancel their acceptance by using a speedier mode of communication (like a telegram) that will reach the offeror before the letter of acceptance. If the letter of acceptance and the letter of revocation reach the offeror at the same moment, the acceptance is deemed to have been revoked as both cancel each other.

Rules for Communication by Telephone/Instantaneous Means

For direct or instantaneous communication, such as by telephone or telex, where the parties are, though separated in space, in each other's presence in terms of communication, the rules are different from postal communication.

• Communication of Acceptance: The contract is complete only when the acceptance is received (clearly heard and understood) by the offeror. The contract is deemed to be made at the time and the place where the acceptance is received or heard.

• The Supreme Court in Bhagwandas G. Kedia v Girdharilal & Co endorsed this principle, holding that a contract arising from a telephonic conversation is completed at the place where the acceptance is received.

• If, during a telephonic conversation, the line goes 'dead' so that one party does not hear the other's words of acceptance, there is no contract at that moment.

Revocation: When parties negotiate over the telephone, no question of revocation can arise, "for in such instantaneous communication, a definite offer is made and accepted at one and the same time". However, given the acceptance rule (completion upon receipt), a theoretical possibility exists for revocation before the words are heard/understood, but the instantaneous nature makes this practically non-existent compared to postal delays.