Communication of Offer and Acceptance and Revocation | Indian Contract Act, 1872

Offer and acceptance are the basic elements in the formation of a contract. However, an offer or acceptance has no legal effect unless it is properly communicated. Effective communication is therefore necessary to avoid uncertainty, misunderstanding and unnecessary revocation between the parties.

When the parties are present before each other, communication does not ordinarily create any difficulty because the offer and acceptance take place instantaneously. The real difficulty arises when the parties are at different places and communicate through post, telephone, telex, fax or e-mail. In such cases, it becomes important to determine the exact point of time at which the offer or acceptance is communicated and becomes complete.

The Indian Contract Act, 1872 attaches considerable importance to this question of time of communication, particularly under Sections 3 and 4.

Communication of Offer

Section 4 provides that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

• For example, A makes an offer to B by post to sell his house for ₹5 lakhs. A posts the letter on 10 March and the letter reaches B on 12 March. The offer is communicated when it comes to B’s knowledge.

Thus, in the case of a proposal sent by post, merely sending or posting the letter is not sufficient. The proposal must reach the person to whom it is made and its contents must become known to him.

• If B receives the letter on 12 March but reads it only on 15 March, the communication is treated as complete on 15 March, when he comes to know of the contents of the offer.

The basic rule is therefore; Communication of offer is complete when the offer comes to the knowledge of the offeree.

Communication of Acceptance

There are two matters which have to be considered in relation to communication of acceptance:

1. the manner in which acceptance may be communicated; and
2. the point of time at which acceptance becomes complete.

Modes of Communication

Section 3 recognises communication by any act or omission intended to communicate the offer, acceptance or revocation, or which has the effect of communicating it.

Communication by act may take place through written or spoken words. Letters, telegrams, fax messages and e-mails are examples of written communication, while a telephone conversation is an example of oral communication.

Acceptance may also be communicated through conduct. A person need not always say in words that he accepts an offer. His conduct may itself clearly show his acceptance.

• For example, when a person boards a public bus, his conduct indicates his acceptance of the offer of the transport authority to carry passengers for the prescribed fare. Similarly, when a person puts a coin into a weighing machine, his act indicates acceptance of the service offered by the owner of the machine.

Communication may also arise through an omission or forbearance in appropriate circumstances. However, mere silence cannot ordinarily be treated as communication of acceptance.

What is important is that the act, omission or conduct must actually communicate the intention of the person concerned. A person may internally decide to accept an offer, but a purely mental decision is not communication.

• Case: Central Bank, Yeotmal v. Vyankatesh (1949) – A bank passed a resolution to sell land to A, but the resolution was not communicated to A. It was held that there was no communication and, therefore, no contract.

The case shows that a decision remaining only within the mind or internal proceedings of a party does not amount to communication. The other party must be made aware of the decision.

When is Communication of Acceptance Complete?

Section 4 makes an important distinction regarding the completion of acceptance. It considers the position from two different points of view.

• As against the proposer, communication of acceptance is complete when the acceptance is put into a course of transmission to him so as to be out of the power of the acceptor.
• As against the acceptor, communication is complete when the acceptance comes to the knowledge of the proposer.

This distinction becomes particularly important when acceptance is sent by post.

Suppose A makes a proposal to B by letter. B accepts the proposal and posts his letter of acceptance on 14 March.

• From A’s point of view, the acceptance is complete on 14 March itself, when B posts the letter and it is no longer within B’s control.
• From B’s point of view, the acceptance becomes complete when the letter reaches A and comes to A’s knowledge.

Therefore, a proposer may become bound by the acceptance even though the letter has been delayed or lost in transit, provided the requirements relating to proper posting are satisfied. The letter should be correctly addressed, adequately stamped and duly posted.

This may create an unusual situation. The proposer may be bound by the acceptance even though the letter has not actually reached him, while the acceptor is not yet bound from his own point of view until the acceptance comes to the knowledge of the proposer. This is the effect of the two different rules contained in Section 4.

Acceptance through Telephone, Telex and Fax

Where communication takes place through instantaneous means such as telephone, telex or fax, the position is different from communication by post. In such cases, acceptance is complete when it is received by the person to whom it is communicated. The contract is made at the place where the acceptance is received.

This principle was recognised in Entores Ltd. v. Miles Far East Corporation.

Telephone communication provides a simple illustration. A contract can be made over the telephone, but the person accepting the offer must ensure that the acceptance has actually been heard by the offeror. If the telephone line suddenly goes dead or there is a disturbance while the acceptance is being communicated, it may be necessary for the acceptor to confirm that the acceptance was properly received. The essential point is that, in instantaneous communication, the acceptance must reach the offeror.

Landmark Supreme Court Case: Bhagwandas Goverdhan Das Kedia v. Girdhari Lal Parshottam Das & Co. (AIR 1966 SC 548)

The Supreme Court of India adopted the rule in Entores, holding that the postal rule under Section 4 does not apply to instantaneous communications (like telephone/telex/fax). The Court held that in instantaneous communications, the contract is complete only when the acceptance is actually heard and received by the offeror. The cause of action arises at the place where the acceptance is received, not where it is spoken or transmitted.

Communication of Special Conditions

In many contracts, certain conditions are printed on tickets, receipts or similar documents. These conditions may sometimes be printed in small letters or may be displayed separately at the office of the service provider. The question is whether a person who accepts such a ticket or receipt can be treated as having accepted the conditions contained in it.

Where the document is accepted without protest and the circumstances show that the terms were communicated or incorporated into the transaction, acceptance of the document may amount to tacit acceptance of the conditions.

• Case: Mukul Datta v. Indian Airlines (1962) - The plaintiff travelled by air from Delhi to Kolkata. The ticket contained certain conditions in fine print. The conditions were treated as having been communicated to the passenger. The case shows that terms printed on a ticket may form part of the contract where the circumstances justify their incorporation.
• Case: Lilly White v. R. Mannuswamy (1966) - The plaintiff gave clothes to a dry cleaner and received a receipt containing a condition that, in case of loss, the customer would be entitled to claim only 15% of the market value of the article. The plaintiff’s new saree was lost. The court held that the condition was unreasonable and that the plaintiff was entitled to recover the full value of the saree. The case is important because it shows that although acceptance of a receipt may amount to tacit acceptance of the terms contained in it, an unreasonable condition will not necessarily be enforced.

Thus, acceptance of a document without protest may amount to tacit acceptance of its terms, but the terms themselves must still satisfy the requirements of law.

Communication of Performance

Acceptance does not always have to be communicated through words. In some cases, the offer itself requires the offeree to perform a particular act, and the performance of that act constitutes acceptance.

Ordinarily, if the offer requires the offeree to communicate the fact of performance, merely performing the act may not be sufficient. However, where the terms of the offer show that performance itself is intended to constitute acceptance, no separate communication is necessary.

Case: Carlill v. Carbolic Smoke Ball Co.

The defendants manufactured and sold a product called the carbolic smoke ball. They published an advertisement offering a reward of $100 to any person who used the product according to the directions and nevertheless contracted influenza. Mrs. Carlill purchased the smoke ball and used it according to the directions. She nevertheless contracted influenza and claimed the reward.

The court held that she was entitled to the reward. The advertisement amounted to an offer to the public, and Mrs. Carlill accepted the offer by performing the conditions stated in it. Since the advertisement did not require her to communicate beforehand that she intended to accept the offer, no separate communication of acceptance was necessary.

The case establishes three important principles:

1. An offer must contain a definite promise that the offeror will be bound when the specified terms are fulfilled.
2. An offer may be made to a particular person or to the public at large.
3. Where an offer is made in return for an act, performance of that act may itself constitute acceptance, even without separate communication.

Thus, where the offer itself makes performance the required mode of acceptance, performance is sufficient and a separate notice of acceptance is unnecessary.

Revocation of Offer and Acceptance

Just as the law lays down rules regarding the making and communication of an offer and acceptance, it also provides rules regarding their revocation.

Section 5 deals with revocation of proposals and acceptances. Section 4 determines when communication of revocation becomes complete.

Communication of revocation is complete:

• as against the person who makes it, when it is put into a course of transmission to the person to whom it is made so as to be out of the power of the person making it; and
• as against the person to whom it is made, when it comes to his knowledge.

For example, if A revokes his proposal to B by telegram, the revocation is complete as against A when he dispatches the telegram. As against B, it becomes complete when the telegram reaches him and comes to his knowledge.

The same principle applies to revocation of acceptance. If B revokes his acceptance by telegram, the revocation is complete as against B when he dispatches it and as against A when it reaches A.

The more important question, however, is not merely when communication of revocation is complete, but when the offer or acceptance can actually be revoked.

Revocation of Proposal

Ordinarily, an offeror can revoke his offer before it is accepted. Once the offer has been effectively accepted, the offeror cannot revoke it.

• For example, a bidder at an auction makes an offer by placing his bid. He may withdraw the bid before the auctioneer accepts it by the fall of the hammer.

An offer may also be withdrawn even though the offeror had originally stated that it would remain open for a particular period. A mere promise to keep an offer open does not, by itself, prevent the offeror from withdrawing it.

• For example, X offers to sell 50 bales of cotton to Y at a particular price and states that the offer will remain open until 6 p.m. X sells the cotton to Z before 6 p.m. If Y attempts to accept the offer after X has withdrawn it, no contract is created because the offer had already been revoked.

Section 5 provides that a proposal may be revoked at any time before communication of acceptance is complete as against the proposer. Therefore, where acceptance is sent by post, the proposer may revoke the offer before the acceptance is posted, but not afterwards. At the same time, the acceptor may revoke his acceptance before communication of the acceptance is complete as against him.

If a letter of acceptance and a letter revoking the proposal/acceptance reach the addressee at the same time, the rule of ‘first opened/read’ applies. If the party reads the revocation first, the offer/acceptance stands effectively revoked.

Modes of Revocation of Offer

A proposal may come to an end in several ways.

1. By notice of revocation

The offeror may expressly withdraw the offer by communicating notice of revocation to the offeree. The revocation must be communicated before the acceptance becomes complete against the proposer.

2. By lapse of time

An offer lapses when the period fixed for its acceptance expires. Where no specific period is fixed, the offer must be accepted within a reasonable time. What amounts to reasonable time depends upon the circumstances of each case.

The reason for this rule is that an offeror cannot be expected to keep an offer open indefinitely.

• Case: Ramsgate Victoria Hotel Co. v. Montefiore (1866) - A person applied for shares in June, but the allotment was made only in November. The court held that he was not bound by the allotment because the offer had not been accepted within a reasonable time.

The principle has also been relevant in the context of allotment of shares, although company law now contains specific provisions dealing with such matters.

3. By non-fulfilment of a condition precedent

An offer may be made subject to the fulfilment of a particular condition before it can be accepted.

• For example, A offers to sell his house to B for ₹5 lakhs provided B leases his land to A. If B refuses to lease his land to A, the condition precedent is not fulfilled and the offer cannot be accepted on the terms proposed.

Similarly, an offeror may require the offeree to execute a document or deposit a particular amount as earnest money. Failure to satisfy such a condition prevents the acceptance from becoming effective.

4. By death or insanity of the proposer

Under Section 6, the death or insanity of the proposer may cause the proposal to lapse, but the fact of death or insanity must come to the knowledge of the acceptor before acceptance. Therefore, the mere occurrence of death or insanity is not sufficient by itself. The statutory requirement concerning the knowledge of the acceptor must also be satisfied.

5. By counter-offer

An offeree may respond to an offer by proposing different terms. Such a response is not acceptance; it is a counter-offer.

• For example, A offers to sell an article to B for ₹50,000. B replies that he is willing to buy it for ₹45,000. B has not accepted A’s offer. He has made a counter-offer.

6. By non-acceptance according to the prescribed or usual mode

Where the offer prescribes a particular manner of acceptance, the offeree should follow that mode. Failure to comply with the required mode may affect the validity of the acceptance in accordance with the terms of the offer and the applicable law.

7. By subsequent illegality

An offer cannot result in a valid contract where the proposed transaction becomes illegal before a valid contract is formed. If the performance contemplated by the proposal subsequently becomes unlawful, the proposed transaction cannot be enforced as a lawful contract.

Difference between Communication of Offer and Communication of Acceptance

Difference between Revocation of Offer and Revocation of Acceptance

Conclusion

Communication is an essential part of the formation of a contract. Section 4 lays down different rules for determining when an offer and acceptance become complete. An offer is communicated when it comes to the knowledge of the offeree, while acceptance is complete at different stages as against the proposer and the acceptor.

The method of communication also affects the legal position. Postal communication operates differently from instantaneous communication through telephone or similar means. Acceptance may also be communicated through conduct or, in suitable cases, by performance of the act required by the offer.

The law also permits revocation of an offer and, within the period specified by Section 5, revocation of acceptance. An offer may further lapse through expiry of time, failure of a condition precedent, death or insanity in the circumstances provided by Section 6, counter-offer, failure to follow the required mode of acceptance, or subsequent illegality.

The central point is that an offer, acceptance or revocation must be considered not merely from the standpoint of intention, but also from the standpoint of communication and the exact time at which the law treats that communication as complete.