What is Offer in Contract Law? Elements, Types & Outcomes

If you intend to enter into a contract, you must familiarize yourself with the essential elements of an offer in contract law. The Indian legal system lays out certain standard rules and regulations that must be followed while entering legally binding agreements.

According to the law of contracts, a promise of money or any other valuable thing from a promisor in exchange for a promise’s performance is known as an offer.  To understand it simply, an offer is a proposed request to sign a contract with set conditions. An offer may be withdrawn, canceled, or renegotiated. Further, it can be expressed in a variety of ways, from a brief, straightforward oral statement to a lengthy, in-depth written statement.

Don’t worry, you don’t have to go and start digging into heavy law books and legal archives to fully understand what a legal offer constitutes. We have prepared a short and simple guide for you to understand all the necessary features of an offer in contract law. 

Keep reading to find insights into the definition, elements, types as well outcomes of an offer in contract law!

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What is Offer in Contract Law?

According to Section 2 of the Indian Contract Act 1872, an offer in contract law can be defined as given below:

"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 simple terms, an offer is a proposal made by one party that seeks the acceptance of said offer from another party, and upon acceptance, a contract is formed, that legally binds the parties involved to agree and follow the terms of the contract.

Example: If ‘X’ offers ‘Y’ to sell a product for five lakhs then ‘X’ is the offeree, and ‘Y’ is the offeror. ‘X’ will give the ownership of a product in exchange for five lakhs. Here ‘Y’ also makes an offer.

In order to create a valid contract, an offer must be made by one party, it must be accepted by another party and the offer must be exchanged along with consideration.  

However, legal offers and contracts aren't always a smooth road. There are various complications and challenges. A common challenge in a contract is to determine the authenticity of the offer and whether the recipient party accepts it as such or not. 

Also Read: Types of Contract in Business Law

Elements of an Offer in Contract Law

Before making an offer or accepting an offer, it is important to know the elements or features of an offer in a contractual agreement. These elements are listed below:

1. Proposal: A proposal is the first essential element of a valid contract.  A proposal (or offer) is a clear expression of willingness by one party to do or refrain from doing something, intending to create a legal relationship upon acceptance. It must be communicated clearly and made with the intent to be bound by the offer once accepted.

The person who offers the proposal is known as the promisor or offeror. The person who is being proposed is referred to as the promisee or offeree. The proposal turns into a promise when the person to whom it is being made accepts it. A proposal or offer is the initial point of an agreement. When one party offers a proposal to another party then both parties enter into a legally binding agreement. So, every agreement is also considered a promise or set of promises. 

2. Parties involved: To make a proposal there must be a minimum of two participants. The individual making the offer is referred to as the offeror and the individual to whom the offer is made is referred to as the offeree.

3. Communication of the offer: The offeree must be aware of the offer proposal. The offer must be communicated to the offeree before he can accept it.

4. To do or abstain from doing: The offeror must let the offeree know whether he is willing to perform the act that comprises the offer or not.

5. Intention to create legal relations: An offer or proposal must establish a legal relationship between the parties. A party invitation is not a valid offer because it is a social obligation.

6. Obtaining Mutual Assent: If both parties accept the offer and willingly accept its terms, then a contract is formed.

7. The offer should have clear and definite terms: An offer must not be vague and should have clear and definite terms. The proposal or offer must be made with the goal of winning the offeree’s approval. For example: if ‘X’ is selling ‘Y’ an item, then they should specify what item is being sold, and what set price is decided for its sale.

8. An offer or proposal can be conditional: An offer may contain some specific condition. The offeree must decide whether to accept the offer under those restrictions. If the offeree adds some of his conditions then it is called a counteroffer.

9. The inconvenience of acceptance cannot be on the offeree: The offer can not state negatively that it will be assumed accepted if the acceptance is not communicated within a certain time period. Thus, there should be no negative condition that automatically renders the offer to be accepted in case of

10. An offer proposal can be specific or implied: The offer can be made explicit by using certain words, a written document, or a verbal message.

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Types of Offers in Contract Law

Offers are classified into various types: 

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Outcomes of an Offer

1. Acceptance: Acceptance occurs when the offeree agrees unequivocally to the terms of the offer, resulting in a binding contract. It must be communicated to the offeror and match the offer exactly without any modifications.

To be accepted, an offer must fulfill the following conditions:

• The offer needs to be communicated
• Must be able to establish a legal relationship
• Must be expressed in language that is certain
• Must be made to obtain the consent of the other party

     Read more here: What is Acceptance in Contract Law?

2. Rejection: Rejection occurs when the offeree refuses the offer, thereby making it void and preventing further acceptance of the original terms. If the offeree proposes new terms, this constitutes a counteroffer, not an acceptance.

3. Termination: Termination of an offer happens when the offer expires, is revoked by the offeror, or is rendered void due to certain circumstances Once terminated, the offer can no longer be accepted unless revived by the offeror.

4. Counteroffer: A counteroffer indicates that the original offer has been rejected, and a new offer is being made with different terms. This alters the course of negotiations. It is crucial in contract negotiations. 

5. Revocation or Withdrawal: An offer can be revoked anytime before acceptance. Understanding revocation is essential for both offerors and offerees, as it ensures clarity about when an offer is no longer valid.

Difference between General Offer and Specific Offer

Let’s take a look at the difference between a general offer and a specific offer in Indian contract law: 

Conclusion

By now you must have understood what are the various components of an offer in contract law, ranging from key elements to types and outcomes. After acquiring a thorough understanding of these terms and their contents, you may now proceed to make informed decisions regarding your legal offers.

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References:
https://indiankanoon.org/doc/171398/ 
https://lawbhoomi.com/types-of-offer/
https://www.upcounsel.com/types-of-offer-in-contract 
https://blog.ipleaders.in/definition-essentials-offer-acceptance/
https://www.drishtijudiciary.com/to-the-point/ttp-indian-contract-act/proposal 
https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/proposal-or-offer/