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Contracts play a very important role in our everyday life. They range from insurance policies to employment contracts to sale deeds. We enter into contracts even without thinking. For example, when buying a movie ticket or downloading an app, we enter into a contract. A contract can be oral or written between two or more parties. Any party entering into a contract can include individuals, companies, non-profits as well as government agencies. The whole process of entering into a contract starts with an offer by one party, an acceptance by another party, and an exchange of consideration (something of value). But, sometimes there may arise a few exceptions to this general rule of entering into contracts.
What are cross offers?
Where two persons make identical offers to each other, and both such persons do not know about each other’s offer, then such offers are known as cross-offer. The essentials of a cross offer are as follows:
- Same offer to one another: The first pre-requisite of a cross offer is that two or more persons should make similar offers with the same details.
- Without knowledge: Such identical offers must be made in ignorance of the offer made by the other party.
- The terms and conditions: The terms and the object of the offers must be the same. A set of offers would be considered to be cross offers only when the terms and conditions as well as the object of the offers are the same. If not, then such offers cannot be called a cross offer but a counter offer.
A cross offer does not mean acceptance of the offer. No binding contract is created.
Illustration: A from Delhi by a letter offers to sell his house to B of Bombay for Rs. 10 lakh. At the same time, B also makes an offer to A to buy A’s house for Rs. 10 lakh. Both the parties made an exact offer to each other without knowing about the offer being made by the other. The two letters cross each other. There is no concluded contract between A and B because both the parties are made a cross offer.
Relevant legal provisions
The Indian Contract Act, 1872 lays down provisions related to contracts. While there is no specific legal provision concerning the cross offer, various judgments have clarified the position of such an offer.
The entire process of entering into a contract begins with the proposal or an offer made by one party to another. According to section 2(a), when one person signifies his willingness to another person to do or abstain from doing anything with a view of obtaining that person’s assent, he is said to make a proposal. The Contract Act doesn’t specify the term “offer” but it is used interchangeably with the term “proposal”.
Features of a valid offer:
- The person making the offer/proposal is the “promiser” or the “offeror”. The person who accepts the proposal is a “promisee” or an “offeree”.
- The offeror must express his willingness to do or abstain from doing an act. Mere willingness or urge to do something is not enough. It must also be communicated.
- The terms and conditions of the offer must be clear and not vague.
- The offer must be made with the intention to form a legal relationship.
- An offer can either be positive or negative. It can be a promise to do some act, and can also be a promise to abstain from doing any act/service. Both are valid offers.
Communication of the proposal is mandatory. An offer is valid if it is conveyed to the offeree. Section 4 of the Act deals with the communication of offers. It states that the communication of an offer is complete when it comes to the knowledge of the offeree. For example, A desires to sell his house to B at a certain price and sends his offer to B through a letter. The communication of this proposal would be complete when B receives the letter.
Section 2(b) states that on acceptance, an offer becomes a promise whereas section 2(d) defines consideration. Section 2(e) states that every promise made with consideration is an agreement.
Section 7 states that the acceptance of an offer must be absolute and unqualified. It must be expressed in a usual and reasonable manner. It is only then that an offer becomes a promise.
While, there is no specific provision regarding cross offers in the Act, the aforementioned sections in the Act, lucidly state that acceptance is a basic obligation for an offer to become a promise. And, in cross offers, there is no such acceptance or communication hence there is no contract between the parties.
- Tin v. Hoffman, (1873) 29 LT 271, is a major case law dealing with the concept of the cross offer. In this case, both the parties made identical offers to each other for the sale of 800 tons of iron. The price and terms of this offer were similar. The question arose whether there was a valid contract between the two. It was held that no contract existed between the two parties. A valid contract consists of an offer, acceptance, and communication. This was absent in the present case. There was no communication or acceptance. It was further held that two identical crossing offers do not form a contract as they lack the essentials of a valid contract.
- In Bhagwandas Goverdhandas Kedia v M/S Girdharilal Parshottamdas & Co. and Others (1966 AIR 543), it was observed by the Hon’ble Supreme Court that “the acceptance and such an intimation of acceptance of the offer are both necessary to form a binding contract.” Thus, this case shows that an offer and acceptance are essential ingredients of a contract. This thus renders cross offers as invalid. They can never be contemplated as contracts.
The principle of ‘cross offers’ is quintessential to the world being governed by industrialization and incessant contracts daily. The immediate principle shows the specificity of the contract laws in India. There are only a few cases involving cross offers when compared to the number of cases involving counter offers, general offers, and specific offers among others. But, the importance of the concept of cross offer can never be undermined. It plainly distinguishes itself from any other kind of offers and thus, aids in a better interpretation of the contracts. Such a step is necessary as an offer is the first step towards making a contract. And different offers present different rules.
An analysis of the legal provisions of the Indian Contract Act, 1872 reveals that the statute does not explain the concept of the various kinds of offers. But, since the Indian legal system is based on Common Law, many legal concepts are evolved based on judicial precedents. More than often, cases from England are also given precedence as the Indian contract law happens to be derived from the English common law. The concept of cross offers too is not specified with the Act, but is a result of the intelligence of the judicial minds, developed over the years.
Offer, acceptance, and communication are essential to forming a contract. It is the existence of these valid ingredients that helps to assess whether a contract persists between two parties or not. An offer is a sign of willingness. On acceptance, it becomes a promise. Both the offer and acceptance must be communicated. Cross offers can never lead to a valid contract as they lack all the essential ingredients. A cross offer is made when both the parties make identical offers to each other without knowing that the other has made a similar offer. It lacks acceptance and communication. Thus, it does not form a valid contract. The concept of cross offers is not explained within the Indian Contract Act but has been developed over the years through judicial precedents.
Authors: Devansh Garg from Vivekananda Institute of Professional Studies (VIPS) and Mansanwalpreet Singh from Rajiv Gandhi National University of law.
Editor: Shalu Bhati from Campus Law Centre, Faculty of Law, University of Delhi.