Law of contract: Implied offer

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The term ‘offer’ is one of the fundamental concepts of the law of contracts. It is a term used in the English Common Law, synonymous with the term ‘proposal’ under the Act. The Indian Contract Act, 1872 is based on the English Common Law. The Preamble of the ’Act’ mentions that it has been passed to define and amend certain parts of the law relating to contracts.

The definition of the term ‘proposal’ in the ambit of Section 2(a) of the Indian Contract Act, 1872 reads as follows,

“When one person signifies to another his willingness to do or to abstain from doing anything, to obtain the assent of that other to such act or abstinence, he is said to propose.”

The person making the offer or proposal is called an ‘offeror’ or ‘promisor’ and the person who may accept such an offer is known as the ‘acceptor’ or ‘promisee’. It is pertinent to note that an offer to do or to abstain from doing something must be made to be agreed by the other party. A voluntary act done by a person and informing the other of his willingness or desire to do such an act, with no intent to obtain the assent of the other party does not constitute an offer or proposal.

 “I will serve the nation whenever required“, is a statement expressing the willingness of the person but does not constitute an offer as there is no intent to obtain the assent of another party. But a statement, “I am willing to sell you this book for Hundred Rupees” is an offer made with the intent to obtain the assent of another party.

A valid offer is the one that gives rise to a valid contract. The offer should create or be with a capacity to create legal relations. Mere social or moral relations, for instance: an invitation to dinner does not give rise to legal relations.

Thus, an Offer is an important constituent of the Indian Contract Act, 1872 and possesses a legal duty to do or to abstain from doing something to amount to a contract. An Offer, by the virtue of this Act, can be Expressed, Implied, General, or Specific. It can also be a Cross Offer or a Standing/Open Offer.

What are implied offers?

Implied Offer is an offer conveyed through an act or signs. Such an offer is only implied rather than overtly stated. However, if the opposite party remains silent over the offer, the offer itself is not valid.

The offer is stemmed from the belief that the product or service offered is proper and legally valid. For instance, a person buying a product from a seller assumes that the product functions properly without a seller explicitly claiming that the product works.

This offer is inferred by the act of a person or circumstances of a particular case. For instance, when a taxi driver offers his service for you to reach your desired destination, it implies that the taxi driver is offering his service for some payment. Such an offer would be an implied offer. In the above-mentioned scenarios, an agreement stems from the offer which is construed to be the proposal as per the act.

As per the Indian Contract Act, a person who makes an offer, when he or she implies to another party regarding the validity of a product or service, he/she has officially entered into an implied offer agreement. An implied offer agreement is of two kinds: in- fact and at law.

An implied offer agreement in-fact is construed to be a legal substitute for an agreement assumed to have taken in place. Such agreements are neither written nor oral but if the conduct of the party creates an obligation of some kind, the law rules that both the parties had an in-fact agreement. The legal elements of implied-in-fact agreements encompass: (i) Acceptance and offer; and (ii) Consideration and mutuality of intent, with which, some terms should be deducted from the actions of the party.

In an English Book of Law, namely, Benjamin’s Sale of Goods, 8th Ed. at page 68 the law as to mutual assent is stated as:

 “The assent need not be as a general rule be expressed. It may be implied from their language or their conduct; may be signified by a nod or a gesture, or may even be inferred from silence in certain cases; as if a customer takes up wares off a tradesman’s counter and carried them away and nothing is said on another side, the law presumes an agreement of sale for the reasonable worth of the goods. But the assent must constitute a valid contract, be mutual, and intended to bind both sides. It must also co-exist in the same moment”.

Implied at-law agreements apply when the law levies a duty to perform an agreement and enforces an agreement against a person’s wishes, if necessary. This can take place in cases where one party would stand to benefit at the expense of the other party. Since a party would unjustly enrich him or herself, the beneficiary must pay fair value or make restitution on all services.

Relevant legal provisions

While the Section 2(a) of the Indian Contract Act defines the term Offer – synonymous with Promise, which also includes of offers- express or implied, the term ‘Implied Offer’ can be construed in preliminary stages of the contract as well as in the case of contracts on the sale of goods or services. The relevant legal provisions of implied offer are:

  • As per Section 9 of the Indian Contract Act, 1872 describes Promises, express, and implied as:

‘In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.’

  • As per Section 5(2) of the Sale of Goods Act, 1930:

‘Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or maybe implied from the conduct of the parties.’

  • Section 62 of the Sale of Goods Act denotes Exclusion of implied terms and conditions, in scenarios which are :

‘Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negative or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.’

Case laws

  • Vishnu Agencies (Pvt.) Ltd v. Commercial Tax Officer &Ors (AIR 1978 SC 449)

In the aforementioned case, where the view that on obtaining the necessary permit, the sugar mills on the one hand, and the Government of Madras on the other agreed to “sell” and “purchase” sugar could admit of no doubt, Hon’ble Hidayatullah. J observed that when the Province of Madras after receiving the permit, telegraphed instructions to despatch sugar and the mills despatched it, “a contract emerged and consent must be implied on both sides though not expressed antecedent to the permit.” The learned Judge summed up the matter as :

“So-long as the parties trade under controls at a fixed price and accept these as any other law of the realm because they must, the contract is at the fixed price both sides having or deemed to have agreed to’ such a price. Consent under the law of contract need not be expressed, it can be implied, The present is just another example of an implied contract with an implied offer and implied acceptance by the parties.”

  • M/s New India Sugar Mills Ltd v. Commissioner of Sales Tax, Bihar (1963 AIR 1207)

In the said case, the case of State of Madras v. Gannon Dunkerky & Co (1959) was relied upon, which relied on the case of The Tata Iron & Steel Co. Ltd. v. The State of Bihar (1958) The Hon’ble Hidayatullah, J. quoted as “In these transactions, there was a sale of sugar for a price and sales tax was payable in respect thereof.  Though consent is necessary for a sale, it may be express or implied, and it cannot be said that unless the offer and acceptance are in an elementary direct form there can be no taxable sale.   The controller permitted the assesses to supply sugar of a Stated quality and quantity to the State of Madras; thereafter the two parties agreed to “sell” and “purchase” the sugar.  So long as the parties trade under controls at a fixed price they must be deemed to have agreed to such a price; there was an implied contract with an implied offer and an implied acceptance.”

Critical analysis

The implication of an implied offer could be made obsolete merely by an act of expressed offer. There are also instances where an act of Implied offer is not given validity on account of inadequate representation of the conduct of the parties or where the words were spoken do not fall adequate for it to be construed as an Implied Offer.

As implied offer is primarily through words spoken or through conduct, there is no written representation of such an offer which makes it difficult to prove its validity when the same is questioned. As express offers are in oral as well as in writing and implied offers are solely through act or conduct, an express offer gains precedence over the implied offer for its strength to be ratified in writing which can be a valid proof in the court of law.

Conclusion

Implied Offer is an important subject in the law of contracts of sale of goods and services. Therefore the term, ‘Implied Offer’ finds its mention both in the Indian Contract Act, 1872 and the Sale of Goods Act, 1930.  The conduct or an act of a person is the basis of such an offer, if the intent to create such an offer is absent or there is no mutual agreement between the parties to the offer, the action of the implied offer would stand invalid.

As mentioned below, an agreement stems from an offer and thus an implied agreement stems from an implied offer.

If there is an implied agreement-in law where the law levies a duty to perform an agreement and enforces an agreement against a person’s wishes if necessary, there is no need to ratify the same. Such agreements abhor discrimination, where the beneficiary is bound to pay the fair value or make restitution of all the services provided.

Thereby, if there is profound applicability of such agreements backed by law, this would protect the interests of the offeror and bound the beneficiary with the duty to pay and acknowledge for the services provided.

Author: Vidhi S Shrivastav from University of Mumbai.

Editor: Yashika Gupta from Rajiv Gandhi National University of Law, Patiala.

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