Indian Legal System > Civil Laws > Indian Contract Act, 1872 > Revocation of Offer
A proposal is main ingredient of a valid contract. The term “proposal” of the Indian Contract Act is synonymous to the term “Offer” in English law. Section 2(a)of the Indian Contract Act, 1872 defines proposal as “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”. The person making proposal/offer is called the proposer/offeror and the person to which the proposal is made is called propose or offeree. In this article, we shall discuss types of offer. Section 9 talks of an express offer, express acceptance, implied offer, and implied acceptance. in this article, we shall study revocation of offer.
Communication means imparting or exchanging information by speaking, writing, or using some other medium. Chapter I of the Act deals with the communication, acceptance, and revocation of Proposal. An offer and its acceptance, to be valid must be communicated to the other party. Similarly, the revocation offer should be communicated to the offeree by the offeror.
Section 3: Communication, acceptance and revocation of proposals:
The communication of proposals the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.
Section 5: Revocation of proposals and acceptances:
A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.
Illustrations:
A proposes, by a letter sent by post, to sell his house to B.
B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.
B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.
Section 6: Revocation how made:
A proposal is revoked
(1) by the communication of notice of revocation by the proposer to the other party;
(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.
The word ‘revocation’ means “taking back”. The Indian Contract Act lays out the rules of revocation of an offer in Section 5. It says the offer may be revoked anytime before the communication of the acceptance is complete against the proposer/offeror. Once the acceptance is communicated to the proposer, revocation of the offer is not possible.
Section 3 of the Act, lays down that the communication of proposal, acceptance, and revocation is must. It may be expressed or implied. The express communication can be written, through emails, telegraphic, telephonic, minutes of a meeting, words of mouth or conduct. Thus revocation proposal may be communicated in any way which has the effect of laying before the offeree that there is revocation of the proposal but it should satisfy the criteria given in the Act.
Section 5 para 1 lays down that revocation of offer can be done at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.
While Section 4 provides the time at which communication of acceptance and revocation of proposal and acceptance is complete, Section 5 first provides that both proposal and acceptance can be revoked, and secondly gives time before which the right of revocation should be exercised. Section 5 must be read along with Section 4.
Example: A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post. A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards. A revokes his proposal by telegram. The revocation is complete as against A when the telegram is dispatched. It is complete as against B when B received it.
The revocation of the proposal is complete as against the person (proposer) who makes it when it is put into a course of transmission to the person (proposee) to whom it is made, so as to be out of the power of the person who makes it. The communication of revocation of Proposal is complete as against the person (offeree) to whom it is made when it comes to his knowledge.
Understanding the TimeLine:
A and B are sitting together on a coffee table. A offers his Car for ₹ 2,00,000 to B. The offer reaches the ears of B, the offer of A is complete. B accepts the offer. Now the revocation of the proposal cannot be done.
A and B are sitting together on a coffee table. A offers his Car for ₹ 2,00,000 to B. The offer reaches the ears of B, the offer of A is complete. B says he requires a week time to think over it. Now the revocation of the proposal can be done by A anytime before B gives his acceptance.
A of Agra by a letter to B of Bhatinda offers his car for ₹ 2,00,000 through by a letter dated on 15th August 2017. B receives the offer letter on 17th August 2017. Now the communication of offer is complete on 17th August 2017. B writes a letter of the acceptance to A on 20th August 2017 and posts it on the same day. A receives the letter of acceptance on 22nd August 2017. The communication of acceptance is done by B on 20th August 2017. Now the control of letter of acceptance is not with B. Thus A has a chance to revoke his offer before the letter of acceptance is being posted by B i.e. before 20th August 2017. Once the letter of acceptance goes beyond the control of B, the offer cannot be revoked by A.
Methods of Revocation of Offer:
Section 6 of the Act provides the methods by which the proposal can be revoked.
By Notice of Revocation (S. 6 Clause 1):
A proposal is revoked by a proposer by communication of notice of revocation proposal to the propose only before the proposee sends the communication of acceptance.
A of Agra by a letter to B of Bhatinda offers his car for ₹ 2,00,000 through by a letter dated on 15th August 2017 and asks B to confirm is acceptance within 7 days of acceptance of letter. B receives the offer letter on 17th August 2017. B writes a letter of the acceptance to A on 20th August 2017 and posts it on the same day. A receives the letter of acceptance on 22nd August 2017. The communication of acceptance is done by B on 20th August 2017. Now the control of letter of acceptance is not with B. Thus A has a chance to revoke his offer by sending a notice before the letter of acceptance is being posted by B i.e. before 20th August 2017. Once the letter of acceptance goes beyond the control of B, the offer cannot be revoked by A.
In Nutakki Shesharatanam v. Sub Collecto,r (LA), AIR 1992 SC 131 case, the landowner offering land for acquisition if lump sum price is paid. He withdrew his offer before the Acquisition officer prepares his award of acceptance. The Court held the withdrawal good. Thus the communication of revocation should reach the offeree before the acceptance is out of his power.
In Tenax Steamship C. Ltd. v. Brimness, 1975 QB 929 (CA) case, A notice of withdrawal of ship from charterer’s services was sent by telex and was received by plaintiff’s telex machine during normal business hours, but the plaintiff read the message the next day. The Court held that he was bound by the notice when his machine received it. Thus the notice of revocation shall be deemed to have been served when it reaches the offeree’s address.
By Lapse of Time (S. 6 Clause 2):
A proposal is revoked by the lapse of the time prescribed in such proposal for acceptance, or, if no time is prescribed by the lapse of a reasonable time, without communication of the acceptance.
A of Agra by a letter to B of Bhatinda offers his car for Rs. 2,00,000 through by a letter dated on 15th August 2017 and asks B to confirm its acceptance within 7 days of acceptance of letter. B receives the offer letter on 17th August 2017 and fails to communicate the acceptance by 24th August 2017. As time lapses A can revoke the offer. If time is specified in offer letter a reasonable time should be considered for the period of acceptance.
In Henthorn v. Fraser, (1892) 2 Ch 27 case, The secretary of a building society handed to the plaintiff in the office of the society an offer to sell a property at 750 pounds giving him right to accept within fourteen days. The plaintiff resided in a different town and took away with him the offer to that town. Next day at about 3.50 p.m. he sent by post his letter of acceptance. This letter was received at the society office at 8.30 p.m. But before that at about 1.00 p.m. the society had posted a letter revoking the offer. The revocation and the acceptance crossed in the course of post. The plaintiff received the letter of revocation at 5.30 p.m. The Court held the revocation ineffective.
In Alfred Schonlank v. Muthunya Chetti, (1892) 2 MLJ 57 case, the defendant left an offer to sell a quantity of indigo at the plaintiff’s office allowing him eight days time to give his answer. On the fourth day, however, the defendant revoked his proposal. The plaintiff accepted it on the fifth day. Holding the acceptance to be useless the Madras High Court said: “Both on principle and authority it is clear that in absence of consideration for the promise to keep the offer open for a time, the promise is mere nudum pactum (bare promise).”
In Byrne v Van Tien hoven, [1880] 5 CPD 344 case, Van Tien hoven offered to sell goods to Byrne by letter dated 1st October. Byrne received the letter on 11th October and telegraphed an acceptance on the same day. On 8th October Van Tien hoven posted a letter revoking the offer. This letter was received by Byrne on 20th October. Van Tien hoven refused to go through with the sale. The Court held that to be effective revocation must be communicated. Where post is used for acceptance, acceptance occurs when and where sent (provided it is contemplated as a means of acceptance) (the ‘postal rule’). However, this rule does not apply in relation to revocation of offers – if post is used for revocation, communication is only effective if and when it is received by the offeree. In this case receipt of the revocation occurred after acceptance with the result that there was a contract formed in this case.
In Ramsgate Victoria Hotel v Montefiore, case, the defendant, Montefiore wanted to buy shares in the complainant’s hotel (Ramsgate Victoria Hotel). He communicated his offer to the complainant that he wanted to buy shares in the hotel at a certain price. After six months, the complainant accepted the offer. However, by this time, the value of shares had gone down and Mr. Montefiore was no longer interested in buying shares. The defendant did not formally revoke the offer, but he did not proceed with the sale. The Complainant brought an action against the defendant for specific performance of contract. The Court passed an order in favour of the defendant. The Court held the company’s claim for specific performance was not successful because the Company had sufficient time to accept the defendant’s offer. Six months was sufficient time to accept an offer. The company accepted the offer after six months so, it was no longer valid due to expiry / lapses of a reasonable period of time. The Court was of the view that an offer must be accepted within the prescribed time and if a time is not prescribed, then it must be accepted within a reasonable period of time.
In Dickinson v Dodds, case, on 10th June Dodds offered to sell house to Dickinson, stating: this offer to remain open until 9.00am on 12th June. Dickinson decided to accept on 11th June but did not advise Dodds immediately. Later on the 11th, Dickinson was informed by a third party that Dodds had sold to someone else. Dickinson then purported to accept the offer. Dodds replied that it was too late – the property had already been sold. The Court held that no particular form of revocation is required. All that is required is that the offeror in some way conveys (directly or indirectly) to the offeree that s/he had changed his or her mind about the offer. There was no question that this had occurred here – Dickinson knew Dodds was no longer prepared to sell before purporting to accept. The promise to keep the offer open was not binding because it was not supported by consideration.
By Non-Fulfillment of a Condition Precedent to Acceptance (S. 6 Clause 3):
Sometimes, the offeror may ask the offeree to fulfill certain conditions before acceptance. If the offeree fails to comply with the conditions prescribed in the communication of offer, then offeror can revoke the offer. Thus if these conditions are not fulfilled, the offer lapses.
A of Agra by a letter to B of Bhatinda offers his car for Rs. 2,00,000 through by a letter dated on 15th August 2017 and asks B to confirm is acceptance and deposit Rs. 50,000 within 7 days of acceptance of letter. B receives the offer letter on 17th August 2017 and confirms the acceptance by 14th August 2017 by telegram. But fails to deposit Rs. 50,000 to A. As the condition of the offer is not satisfied, A has the right to revoke his offer.
entered into a hire-purchase agreement for a car. The claimant, a finance company, gave the dealer authority to draw up the agreement on its behalf. That agreement stated that it would only be binding on the claimant once the claimant had signed and accepted it. Two days later, before the claimant signed the agreement, the defendant informed the dealer that he no longer wanted to go through with the agreement. The night before the claimant signed the agreement, the car was stolen from the dealer. By the time the car was found, it had been damaged. The claimant sued the defendant for the price of the car, minus a deduction for the value of the damage. The defendant then argued that he was not obliged to pay, because he had revoked his offer before the claimant signed the agreement. The Court of Appeal held in favour of the defendant. The dealer acted as the claimant’s agent. In that capacity, he had ostensible authority to accept the defendant’s revocation of the offer. Since the claimant had to sign the contract to accept the offer, and they had not done so before the offer was revoked. Therefore, there was no contract. Additionally, the Court held that the offer was conditional on the car being in the condition it was when the offer was made. As such, even if the offer had not already been revoked, it was no longer capable of being accepted once the car was damaged.
By Death or Insanity of the Proposer (S. 6 Clause 4):
A proposal can be revoked by death or insanity of the proposer if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance. Death of the offeror revokes the proposal and if acceptance is made it has no effect.
In Raja of Bobbili v. A. Suryanarayana Rao, (1919) 42 Mad 776 case, an auction sale was held by the Court, the bid was subject to its sanction or acceptance by the Court but before the Court could accept it, the bidder died and it was held that on the death of the bidder his bid stood revoked.
Other Methods of Revocation of Offer:
By Counter Offer:
When the offeree gives a qualified acceptance of the offer subject to modified and variations in the terms of the original offer, then the offer made by the original offeree is called counter-offer. The counter-offer amounts to the rejection of the original offer. By the counter-offer following legal effects come into existence (a) Rejection of original offer, (b) The original offer lapses, and (c) A counter offer result is a new offer.
A offered to sell his old car to B for ₹1,00,000. B replied, “I am ready to pay ₹90.000”. On A’s refusal to sell at this price, B agreed to pay ₹1,00,0000. Now A is not bound to sell his car to B at ₹ 1,00,000. Initial offer to sell the car for ₹ 1,00,000 was made by A. B rejected the offer by giving a counter-offer to buy the car at ₹ 90,000. A refused this counter-offer. Now again B is giving a new offer to A to buy the car at ₹ 1,00,000. Thus as offeree, he has the right to accept or reject the new offer by B. Note that a counter-offer amounts to a rejection of the original offer and gives power to offeror to revoke the offer.
In Harvey v. Facey, ((1893) A. C. 552) case the plaintiffs telegraphed to the defendants, writing, “Will you sell us Bumper Hall Pen? Telegraph lowest cash price”. The defendants replied, also by a telegram, “Lowest price for Pen, £ 900”. The plaintiffs immediately sent their last telegram stating, “We agree to buy Pen for £ 900 asked by you”. The defendants, however, refused to sell the plot of land at that price. The court held that the defendants gave only the lowest price and did not express their willingness to sell the plot of the land. The offer was made by the plaintiff in his last telegram to the defendant which was never accepted by the defendant.
By Acceptance not Being Accepted in the Mode Prescribed:
If the offeror has prescribed a mode of acceptance, it should be strictly followed by the offeree. If the offer is not accepted in the mode prescribed, the offeror can reject acceptance by giving notice to the offeree within a reasonable time that offer should be accepted in the mode prescribed and not otherwise.
A company selects Mr. M for the post of General Manager and sends him the offer letter and asks him to confirm is acceptance within 7 days of acceptance of its email by email only. B receives the offer letter on and communicates the acceptance to the company by speed post. The communication of offer clearly mentions that the communication should be by email only. Thus the condition of the offer is not satisfied. Hence the offer given can be revoked.
By Rejection of the Offer by Offeree:
An offer also comes to an end when the offeree does not accepts it and an offer once rejected cannot be revived again by him.
A of Agra by a letter to B of Bhatinda offers his car for Rs. 2,00,000. B rejects the offer. Now B cannot revive it.
In Hyde v. Wrench, (1840) 49 ER 132 case, the defendant(offeror) offered to sell his farm for £1000 but the Plaintiff(offeree) offered him £950 and subsequently rejected the offer. So, the offeree filed the case as the offeror was bind by the contract but it was held that as soon as offeree put the condition the first offer becomes void which means that the offeror is not bounded by the contract as the original offer was rejected by the offeree.
In Stevenson, Jacques v McLean, (1880) 5 QBD 346 case, the defendant possessed several warrants for iron. He wrote the claimant in London asking them if they could find him a buyer. After negotiations, the defendant stated that 40s per ton was the lowest price he was willing to sell for. He told the claimant that this offer was open until the following Monday. The claimants sent a telegram on Monday morning asking if the defendant agreed to delivery over two months, and if not, how long he could give. The defendant did not respond, and sold the warrants to a third-party later that day. Before he informed the claimant of this, they sent another telegram in the afternoon accepting the defendant’s offer. The claimant sued the defendant for damages for non-delivery of the iron. The defendant argued that the claimant’s first telegram was a counter-offer, and therefore that his original offer had been revoked. The Court held in favour of the claimant. The first telegram was merely an inquiry for information, not a counter-offer. While the defendant could have revoked his offer at any time on Monday, he failed to do so before the offer was accepted. There was therefore a completed contract between the parties. A mere inquiry would not be considered as rejection.
By Subsequent Illegality of Subject Matter of the Offer :
An offer lapses if it becomes illegal before its acceptance by the offeree.
A offers “Pan Masala” of Rs. 2,00,000 to B on 1 st July 2012 and asks him to confirm acceptance by 15th July 2012. On 10th July 2012, the State Government declared the sale of “Pan Masala” as illegal. Thus consideration is becoming illegal. Hence the offer lapses.
By Subsequent Destruction of Subject Matter of the Offer:
An oil trader offers 10 tons of palm oil to B on 1 st July 2012 and asks him to confirm acceptance by 15th July 2012. On 10th July 2012, due to fire, all the stock of oil of A gets destroyed. As the subject matter of the offer is destroyed, the offer lapses.
Before Fall of Hammer:
In an auction sale, a bidder may withdraw his bid at any time before the fall of the hammer (acceptance).
In Payne v Cave, (1789) 3 TR 148 case, the claimant put his goods up for sale at a public auction. The defendant made the highest bid, but then changed his mind. He purported to withdraw the bid before the auctioneer’s hammer fell. The claimant argued that there was a completed contract and the defendant had to pay for the goods. The Court held in favour of the defendant. The defendant’s bid was an offer, which had been withdrawn before it was accepted. As such, there was no contract.
Irrevocable Offer:
The right to revoke an offer before it is accepted by the offeree always lies with the offeror, but the offeror in some cases can waive this right by creating a contract that obligates both parties agree to keep the offer available for a specific or indefinite duration until a specific event occurs.
An irrevocable offer is an offer which when entered into a contract is signed by the offeror or his or her agent which clearly emphasizes and states that the said offer is irrevocable during the time officially set and fixed. The said offer cannot be revoked during this particular time because of the absence of consideration to ensure irrevocability.
A party that refuses to fulfil its obligations of this contract becomes financially responsible in court. For example, an offer is made to sell land for ₹1000000, and in consideration of ₹100000, which is paid by the offeree, the person offering agrees to keep the land open for a week. The offeror, however, asks for revocation on the third day, but it will not be valid because he or she cannot sell the property for that specific week. Furthermore, if he or she does so, he or she has to make a payment for damages. Therefore, such an offer is irrevocable.
Offers are considered irrevocable under the following conditions:
- If it is stated that the offer shall be kept open as part of consideration.
- If the offeree relied on the offer being open to their detriment/ option.
- If the contract is unilateral, has been partially completed or is underway and the offeree is still in compliance with the terms.
- Signed offers with firm terms that guarantee a party will buy or sell goods that include an assurance that the offer must be held open, even if no consideration is present.
- If a stated period is provided, the offer is irrevocable for the lesser of that period or three months time.
Conclusion:
A proposal can be revoked any time before the acceptance is complete against the proposer so as to create a binding contract. The revocation of the proposal is complete as against the person (proposer) who makes it when it is put into a course of transmission to the person (proposee) to whom it is made, so as to be out of the power of the person who makes it. The communication of revocation of Proposal is complete as against the person (offeree) to whom it is made when it comes to his knowledge. Postal rule is not applicable to revocation of offer.