In contract proposal and acceptance of proposal are important ingredient. In last few articles, we have discussed, proposal, types of proposal, revocation of proposal and acceptance. In this article, we shall discuss revocation of acceptance in details.

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.

The word ‘revocation’ means “taking back”. The Indian Contract Act lays out the rules of revocation of an offer and acceptance in Section 5. It says an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. . Once the proposer receives communication of acceptance, revocation of the acceptance is not possible. In England, once letter of acceptance is posted, it binds both the parties and there appears to be no scope of revocation of acceptance by sending a telegram or through a phone call.

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 acceptance may be communicated in any way which has the effect of laying before the offeror that there is revocation of the acceptance but it should satisfy the criteria given in the Act.

Section 5 para 2 lays down that an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, 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.

Understanding Time Line of Revocation of Offer:

If the post is the correct method of acceptance, then acceptance takes place as soon as the letter is posted and not when it arrives. Provided the letter is properly stamped and addressed. Posted means put in control of post office, or one of its employees authorized to receive letters.

‘A’ offers by a letter dated April 2, sent by post, to sell his house to B at a certain price. B accepts the offer on April 6 by a letter sent by post. The letter reaches A on April 8 at 2 p.m. Here B may revoke his acceptance at any time before 2 p.m. on April 8, but not afterwards.

Sometimes, an interesting situation may arise. The letter of acceptance and the telegram containing revocation of acceptance may be delivered to the offeror at the same time. In such a situation the formation of a contract is a matter of chance. Which one is opened first by the offeror will decide the issue. Generally it is presumed that a man of ordinary prudence will first read the telegram. Hence, the revocation will be quite effective. When the parties at distant places communicate over telephone or telex, the question of revocation does not arise because there is instantaneous communication of the offer and its acceptance. The offer is made and accepted at the same time. In brief you should remember that an offer can be revoked at any time before the letter of acceptance’ is posted and an acceptance can be revoked before it reaches the offeror.

In Entores Ltd v Miles Far East Corporation, [1955] 2 QB 327 case, the Plaintiffs (Entores) were an English Company and the Defendants (Miles Far East Co) were an American corporation with agents in various locations, including Amsterdam. An offer and acceptance in relation to a contract for Japanese cathodes was made between the companies in London and Amsterdam. Specifically:

• the Plaintiffs (in London) sent an offer by telex to the Defendants (in Amsterdam).
• the Defendants (in Amsterdam) sent an acceptance by telex to the Plaintiffs (in London)

The issue was when the contract entered into force, as this would determine whether Dutch or English law would apply to the contract. Specifically, the Court was required to determine whether the postal rule (providing that acceptance occurs when and where the letter is sent) applied to telex communications.

The court held that the contract and damages were to be decided by English law. It was stated that the postal rule did not apply for instantaneous communications. Since Telex was a form of instant messaging, the normal postal rule of acceptance would not apply and instead, acceptance would be when the message by Telex was received. Thus, the contract was created in London. This general principle on acceptance was held to apply to all forms of instantaneous communication methods. Acceptance via these forms of communication had to be clear before any contract is created.

Conclusion:

A proposal and acceptance can be revoked at any time before it creates a binding contract. A proposal can be revoked anytime before the acceptance is complete against the proposer so as to create a binding contract. And an acceptance can be revoked anytime before the communication of acceptance is complete against the acceptor. The mode of communication should be as prescribed. In England, once letter of acceptance is posted, it binds both the parties and there appears to be no scope of revocation of acceptance by sending a telegram or through a phone call.

Under the Indian Contract act, 1872, an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. Once the proposer receives communication of acceptance, revocation of the acceptance is not possible.

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The party who makes the offer is known as the offeror, and the party who accepts the offer is known as the offeree. Termination of offer is where the offer is terminated before the other side(offeree) has the opportunity to accept or reject it.  There are a number of ways for an offer to be terminated. An offer is terminated in the following circumstances:

• Revocation
• Rejection
• Lapse of time
• Conditional Offer
• Operation of law
• Death
• Acceptance
• Illegality

Termination of Offer by Revocation:

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. An offer can be revoked at any time before acceptance takes place. However, the revocation must be communicated effectively directly or indirectly to the offeree before 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.

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.

Termination of Offer by Rejection:

The refusal of an offer by the offeree is called rejection. An offer is terminated when the offeree communicates his rejection to the offeror. Once an offer has been rejected, it cannot subsequently be accepted by the offeree. A counter-offer ranks as a rejection, but a mere inquiry as to the possibility of varying some term does not.

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.

Termination of Offer by Lapse of Time:

Where in a contract, a fixed time has been prescribed to the offeree to communicate the acceptance, the offeree is bound to accept the offer within the fixed time so prescribed because after the expiry of the fixed time the offer lapses. The validity of the offer by the offeree would not be affected if the letter of acceptance so posted within the stipulated time reaches the offeror after the completion of the specified time (Postal Rule). Where there is no express time limit, an offer is normally open only for a reasonable time. The length for a reasonable time will depend on the circumstances of the case with respect to offers involving other types of subject matter, definition of a reasonable time depends upon the demand for the subject matters and upon the volatility of its price.

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.

Termination of Offer by Condition:

An offer which expressly provides that it is to terminate on the occurrence of some condition cannot be accepted after that condition has occurred; and such a provision may also be implied. In other words, termination of an offer may also occur due to a condition not being met.

In Financings Ltd v Stimson, [1962] 3 All ER 386 case, the parties 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.

Termination of Offer by Operation of Law

If there is no option contract, death or incapacitation of either party prior to acceptance will terminate the offer. It does not need to be communicated to the other party either. Death and incapacity do not terminate irrevocable offers. If the laws change prior to acceptance of the offer, the law will terminate the offer because it would become a void contract. In the event that the subject matter of the offer is destroyed prior to acceptance, this constitutes termination of the offer as well.

Termination of Offer by Death or Mental Incapacity:

The right to accept an ordinary offer is not transferable. Thus, the death of either the offeror or the offeree will cause termination of the offer. The unaccepted offer of a deceased person cannot be converted into a contract binding upon his estate.

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.

In Reynolds v Atherton, (1922) 127 LT 189 case, the claimant were a firm of cotton brokers. They acted under a brokerage contract with the defendant, a cotton spinning company. In order to renew their contract, the claimant purchased various shares in the defendant. In 1911, the claimant wrote the company a letter addressed to the directors. It stated that the claimants were willing to transfer their shares, while they remained the defendant’s broker. The defendant acknowledged the letter but did not respond until 1918. By that time, the shares had risen considerably in value and the composition of the defendant’s board of directors had changed. Three directors had also died. The defendant sent a letter purporting to accept the claimant’s offer on behalf of the directors who had run the company in 1911 (including the estates of those who had died). The claimant sought a declaration that there was no enforceable contract. The House of Lords held in favour of the claimant. The claimant had made their offer to the board of directors as an entity, whose composition might change. They had not made the offer to the particular directors who ran the company in 1911. The defendant’s letter had therefore not properly accepted the offer.

Termination of Offer by Acceptance:

Once the offer was accepted by the offeree, the contract is formed and brought the offer to an end. It can be made either orally, in writing, or by the implication of conduct when they are received by the offeror.

In Felthouse v Bindley, (1862) EWHC CP J35 case, the complainant, Paul Felthouse, had a conversation with his nephew, John Felthouse, about buying his horse. After their discussion, the uncle replied by letter stating that if he didn’t hear anymore from his nephew concerning the horse, he would consider acceptance of the order done and he would own the horse. His nephew did not reply to this letter and was busy at auctions. The defendant, Mr Bindley, ran the auctions and the nephew advised him not to sell the horse. However, by accident he ended up selling the horse to someone else. The Court held that there was no contract for the horse between the complainant and his nephew. There had not been an acceptance of the offer; silence did not amount to acceptance and an obligation cannot be imposed by another. Any acceptance of an offer must be communicated clearly. Although the nephew had intended to sell the horse to the complainant and showed this interest, there was no contract of sale. Thus, the nephew’s failure to respond to the complainant did not amount to an acceptance of his offer.

Illegality:

Finally, a change in the law which makes a potential contract illegal will terminate an offer, since courts will not enforce an illegal contract.

Conclusion:

Termination of an offer is not the same as contract termination. In the case of termination of an offer, the contract was not fully formed. Termination of an offer ends the power of the offeror to perform. A termination of offer can only be terminated prior to the offeree accepting it. It can happen by one of the party’s actions or operation of law.

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In contract proposal and acceptance of proposal are important ingredient. In last few articles, we have discussed, proposal, types of proposal, revocation of proposal. In this article, we shall discuss the communication of acceptance.

Section 2(h) of the Indian Contract Act , 1872, defines the term ‘Contract’ as “An agreement enforceable by law is a contract.” Section 2(e) of the Act defines the term “agreement’ as “Every promise and every set of promises, forming the consideration for each other, is an agreement.”

The term ‘Proposal’ is defined under Section 2(a) of the Act 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.”

Section 2(b) of the Act defines the term ‘Promise’ and and 2 (c) of the Act defines the terms ‘Promisor’ and ‘Promisee’. According to Section 2(b) of the Act, When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; According to Section 2(c) of the Act, the person making the proposal is called the “promisor”, and the person accepting the proposal is called “promisee”,

A contract comes into being from the acceptance of an offer. Section 2(b) of the Act defines acceptance as follows: “When the person to whom the offer is made signifies his assent thereto, the proposal is said to be accepted .” The acceptance of the offer must be absolute and unqualified i.e. it cannot be conditional. Sections 7 and 8 lay down criteria of valid acceptance.

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 4: Communication when complete:

The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

The communication of an acceptance is complete,—

as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor;

as against the acceptor, when it comes to the knowledge of the proposer.

The communication of a 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 who makes it;

as against the person to whom it is made, when it comes to his knowledge.

Illustrations

a) A proposes, by letter, to sell a house to B at a certain price. The communication of the proposal is complete when B receives the letter.

(b) B accepts A‟s proposal by a letter sent by post. The communication of the acceptance is complete, as against A when the letter is post; as against B, when the letter is received by A.

(c) A revokes his proposal by telegram. The revocation is complete as against A when the telegram is despatched. It is complete as against B when B receives it. B revokes his acceptance by telegram. B‟s revocation is complete as against B when the telegram is despatched, and as against A when it reaches him.

Communication of Acceptance:

Section 4 para 2 of the Indian Contract Act lays down conditions for communication for acceptance. In section 4 para 1 lays down that the communication of offer is completed when it comes to the knowledge of the person to whom it is made. Similarly, the acceptance by the offeree needs to be communicated to the offeror. This is important because, the promisor can always revoke his or her offer before there is an acceptance, but not after.

In case of a specific offer, it is made to a specific person, and only that person or his agent can accept the offer. Communication from acceptor or his agent for acceptance or rejection is necessary. In the case of a general offer, it is made to the public in general. A General offer can be accepted by anyone. If offeree fulfills the terms and conditions which are given in offer then offer is accepted. Communication of acceptance is not necessary in the case of a general offer

The Section 4 para 2 of the Act lays down that the communication of an acceptance is complete:- as against the proposer, when it is put in the course of transmission to him, so as to be out of the power of the acceptor to withdraw, and as against the acceptor, when it comes to the knowledge of the offeror.

In Ram Das Chakrabarti v. Cotton Ginning Co. Ltd. ILR (1887) 9 All 366 case the Court held that the offeror becomes bound when a properly addressed and adequately stamped letter of acceptance is posted.

In Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas, AIR 1966 SC 543 case, the Supreme Court made clear the confusion about the completion of the contract by telephone or telex. The majority of judges held that the communication on telephone or telex is like an exception of section 4 and held where a contract is made by telephone, the contract is complete only when acceptance is received by the proposer. The contract is made at a place where acceptance is received, it means at the place of the proposer.

Mode of Acceptance:

Acceptance can be done in two ways, namely

Communication of Acceptance by words: In this case, communication is initiated via words, whether oral or written. For this communication telephone calls, letters, e-mails, telegraphs, etc. may be used. A written application by a candidate for a post of manager in a written form is an express offer. Confirmation of his appointment with the explanation of terms of employment by the vice president of a company who is authorized to do so by telephone is acceptance of the offer by Act. This mode of acceptance is expressed acceptance.

Communication of Acceptance by Conduct: The offeree can also convey his acceptance of the offer through some action of his, or by his conduct. When we are waiting for a bus to go to a certain place, the bus which can take us to the place where we desire to go arrives and halts at the bus stop. We enter the bus and pay requisite fair. A ticket is given to us. When destination comes we board down the bus. The bus halts at the stop. By this conduct, he is giving an offer to us. By entering the bus we accept the offer. Thus acceptance is also by conduct. This mode of acceptance is implied mode of acceptance.

In Tinn v. Hoffman & Co., (1873) 29 LT 271 case, the defendant wrote to the plaintiff offering to sell a certain quantity of iron at a certain price. On the same day without knowledge the plaintiff wrote to the defendant that he want to buy the same quantity of iron at the same price. The letters crossed in the Post. The plaintiff contended that there was a concluded contract. But the Court held that the defendant were not liable by the simultaneous offers, each made in ignorance of the other. Blackburn J. said “when contract is made between two parties, there is a promise by one in consideration of the promise made by the other, there are two assenting mind, the parties agreeing in opinion and one having promises in consideration of the promise made by the other- there is exchange of promise. But I do not think exchanging offers would , upon the principle, be at all the same thing….. The promise or offer made on each side in ignorance of the promise or offer made on the other side, neither of them can be construed as an acceptance of the other.”

Timing of Acceptance

As against the offeror, the communication of the acceptance is complete when he puts such acceptance in the course of transmission. After this it is out of his hand to revoke such acceptance, so his communication will be completed then. So, the offer of the offeror is deemed to be accepted the moment the offeree has transmitted the acceptance to the offeror and there is no possibility for him to retract it, even before the offeror has received it or comes to know about it.

As against the offeree, the communication in case of the acceptor is complete when the proposer acquires knowledge of such acceptance. For the offeree, the acceptance is considered to be communicated to the offeror only when the offeror has received it and come to know about it. An offeror cannot stipulate in the offer that silence or no communication will deem to be an acceptance.

Understanding the TimeLine of 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 15^th August 2017. B receives the offer letter on 17^th August 2017. Now the communication of offer is complete on 17^th August 2017. B writes a letter of the acceptance to A on 20^th August 2017 and posts it on the same day. A receives the letter of acceptance on 22^nd August 2017. The communication of acceptance is done by B on 20^th August 2017. Now the control of letter of acceptance is not with B. Thus for B the communication of acceptance is completed on 20^th August 2017and for A the communication of A is completed on 22^nd August 2017.

In Ramsgate Victoria Hotel v Montefiore, (1865-66) LR 1 Ex 109 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, (1876) 2 Ch D 46 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.

In Byomkesh Banerjee v. Nani Gopal Banik, AIR 1987 Cal 92 case, A letter of allotment of shares was claimed to have been posted by a company, but the applicant denied to have received it. The Court said: “It follows from S. 4 and S. 5 that a notice of allotment, which is acceptance of the offer to purchase shares, is communicated to the allottee when it is dispatched, and from that moment there is a complete contract with him. Whether or not he receives the letter is absolutely immaterial”. In this case, the company failed to furnish any evidence of the posting of the notice of allotment.

In Financings Ltd v Stimson, [1962] 3 All ER 386 case, the parties 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.

In Hairoon Bibi v. united India Life Insurance Co, AIR 1947 Mad 122 case, where a premium due on a life insurance policy was sent by money order, it was held that the policy had revived from the date of the money order and not from the date of its receipt by the company. The assured having died in the meantime, his widow recovered the proceeds.

Conclusion:

Acceptance, only effective once communicated to the offeror. An offeror can however dispense (expressly or impliedly) with the need for actual communication of the acceptance- by treating the doing of the act as an effective acceptance (unilateral contract). The general rule is that an acceptance must be communicated to the offeror. Until and unless the acceptance is so communicated, no contract comes into existence. The acceptance must be communicated by the offeree or someone authorized by the offeree. If someone accepts on behalf of the offeree, without authorization, this will not be a valid acceptance.

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In contract proposal and acceptance of proposal are important ingredient. In this article, we shall discuss proposal in details.

Section 2(h) of the Indian Contract Act , 1872, defines the term ‘Contract’ as “An agreement enforceable by law is a contract.” Section 2(e) of the Act defines the term “agreement’ as “Every promise and every set of promises, forming the consideration for each other, is an agreement.”

Thus, Contract = Offer from offeror (Promisor) + Free consent from another party (Offeree / Promisee) + Legal consideration + Legal enforceability.

Thus, 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.

Illustration: If A tells B “he is interested in buying his (B’s) car for ₹ 2 lakh. Will, you sell the car to me?”. Here, with information, there is a consideration (₹ 2 lakhs) and expectation of agreement from B. Thus this is a proposal.

In Bank of India v. O. P. Swaranakar, AIR 2003 SC 858 case, the Court held that a proposal is made when one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence.

In Balram Gupta v. Union of India, AIR 1987 SC 2354 case, the Court held that a person can withdraw or modify his offer or tender before communication of acceptance is complete as against him, that is before its acceptance is intimated to him.

Essential Elements of an Offer / A Proposal:

• There must be two parties.
• The offer must be communicated to the offeree.
• The offer must show the willingness of offeror. i.e. the terms of offer must be clear and it is made with the intention that it should be binding.
• The offer must be made with a view to obtaining the assent of the offeree.
• An offer may involve a positive act or abstinence by the offeree.
• A mere expression of willingness or expression made jokingly or desire does not constitute an offer.

Example: A tells B’ that he desires to marry by the end of 2018, it does not constitute an offer of marriage by ‘A’ to ‘B’ because there is no expectation of acceptance from B. If he further adds “will you marry me?” to the previous expression. Then it becomes an offer.

There must be minimum two parties in a contract.

A party to a contract is one who holds the obligations and receives the benefits of a legally binding agreement. When two parties enter into an agreement, there are two distinct roles each play: the promisor and the promisee. The promisor is the party that makes the promise, while the promisee is on the receiving end of the promise.

Offer must be communicated to the offeree.

The offer is completed only when it has been communicated to the offeree. Until the offer is communicated, it cannot be accepted. Thus, an offer accepted without its knowledge does not confer any legal rights on the acceptor.

In Lalman Shukla v. Gauri Datt (1913) All LJ 489 case A’s nephew has absconded from his home. He sent his servant to trace his missing
nephew. When the servant had left, A then announced that anybody who has discovered the missing boy would be given the reward of Rs.500. The servant discovered the missing boy without knowing the reward. When the servant came to know about the reward, he asked for the same from A. A refused to give the reward. The servant brought an action against A in the court of law to recover the same. But the court held that when the servant discovered the boy, he was not aware of the reward. Thus the offer was not communicated to him. Hence he is not liable to get the reward from A.

In Powell v. Lee (1908 24 TLR 606) case the plaintiff Powell applied for the post of a headmaster and his application was accepted by the School Board. Before the formal appointment, one of the Board members had informed Powell of the decision which was later rescinded by the Board. Powell sued the School for breach of contract.  The court held that the acceptance was not communicated by someone authorized by the School Board and thus there was no valid contract.

In Taylor v. Laird (25 L.J. Ex. 329) case, the plaintiff was employed as the captain of a ship which was owned by the defendant. Whilst in a foreign port during the course of the voyage, he voluntarily gave up his position as a captain and worked as an ordinary crew member during his passage back to Britain. The defendant was not made aware of this change of position. Upon his return, he sought to claim wages from the defendant for his work as a crew member during this journey. The court held that the plaintiff has not communicated his offer to work as a crew to the defendant and hence he had not entered into any contractual agreement with the defendant for the performance of his work as an ordinary crew member.  hence the plaintiff is not entitled to wages for the return journey.

The offer must be certain definite and not vague or unambiguous.

There must be no confusion about the terms used in an offer. Both offeror and offeree should understand one and the same thing from the offer. The terms of offer must be clear and it is made with the intention that it should be binding.

Example: A offered to sell to B, ‘a hundred tons of oil’. We can see that the offer is not specifying which type of oil (groundnut or sunflower or sesame, or rice bran, etc.) A want to sell to B. Thus the offer is vague, ambiguous, and uncertain. Hence it is not an offer.

There must be the intention that the offer should be binding

In Jones v Padavatton, [1968] EWCA Civ 4 case, Mrs. Violet Laglee Jones, the mother had asked her daughter, Mrs Padavatton to leave her job in the United States and come to the UK to study for the bar. The mother had further promised maintenance of 200 dollars per week. On this basis, the daughter in November 1962 came to the UK and started her education. The allowance agreed was insufficient for Mrs Padavatton. In 1964 the mother bought a house and varied the agreement by giving the daughter a part of the house to stay and a part to rent so as to cover her expenses and her maintenance. Mrs Padavatton failed to clear bar exam. In 1967 the parties had an argument and as a consequence, the mother brought an action for the possession of the house. The mother based her claim on the allegation that the agreement was not made with the intention of creating a legal relationship. The issues themselves primarily revolve around the validity of the contract and the intention to create a legally binding relationship. The Court held that there cannot be a legally valid contract if there was no intention to form one in the first place and there is a strong possibility that members of a family do not intend to get into legally binding agreements and the Court handed over possession of house to Mrs. Jones.

The offer must be capable of creating a legal relation. 

An offer in order to give rise to a contract must be intended to create and be capable of creating legal relations. A social relation (moral or matrimonial or religious or friendly) do not create legal relations.

‘A’ invited ‘B’ to dinner and ‘B’ accepted the invitation. It is a mere social invitation. And A will not be liable if he fails to provide dinner to B.

In Balfour v. Balfour (1919 2 K.B. 571) case Mr. Balfour is the Defendant and Mrs. Balfour is the Plaintiff. The couple lived in Ceylon (Now Shrilanka) and visited England on a vacation. The plaintiff remained in England for medical treatment. The defendant has agreed to send her a specific amount of money each month until she could return. The defendant failed to honour the promise. Mrs. Balfour sued for restitution of her conjugal rights and for alimony equal to the amount her husband had agreed to send. The lower court entered judgment in favor of the plaintiff and held that the defendant’s promise to send money was enforceable. The court held that Mrs. Balfour’s consent was sufficient consideration to render the contract enforceable and the defendant appealed.  The Higher Court held that the agreement between husband and wife is of social nature and cannot be enforceable by law. Hence Mr. Balfour is not liable for honouring the agreement. By this case law, all social agreements are not enforceable by the law. This judgment is considered a Landmark judgment.

In Rose & Frank Co. v. Crompton & Bros. Ltd, 1923(2) KB 261 case, when companies entered into an agreement about the exchange and purchase of toilet paper at a certain price. The agreement made between both the companies stated that “This agreement is not entered into nor is the memorandum written as a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts”. The Court held the agreement void since the contract does not give any possible legal consequences.

Offer may be express and implied.

An offer which is expressed by words, written or spoken, is called an express offer. The offer which is expressed by the conduct is called an implied offer.

In Uptron Rural District Council v. Powell, 1942 1 All ER 220 case, the defendant has asked the plaintiff to do the services as he thought they will do it for free. But as the service was not entitled to a free service zone the plaintiff demanded money for their services. It was held that the defendant desired and requested Upton’s services, according to the court, and they were given. As a result, the services were deemed to be delivered based on an implied commitment to pay.

Communication of offer should be complete.

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 ₹ 10,000. 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.

In Tinn v. Hoffman & Co., (1873) 29 LT 271 case, the defendant wrote to the plaintiff offering to sell a certain quantity of iron at a certain price. On the same day without knowledge the plaintiff wrote to the defendant that he want to buy the same quantity of iron at the same price. The letters crossed in the Post. The plaintiff contended that there was a concluded contract. But the Court held that the defendant were not liable by the simultaneous offers, each made in ignorance of the other. Blackburn J. said “when contract is made between two parties, there is a promise by one in consideration of the promise made by the other, there are two assenting mind, the parties agreeing in opinion and one having promises in consideration of the promise made by the other- there is exchange of promise. But I do not think exchanging offers would , upon the principle, be at all the same thing.”

Mere Intention is not enough.

A statement of intention made during a conversation will not constitute an offer, even though acted upon by the party to whom it is made.

In Weeks v. Tybaid (1905 Noy. 11) case the defendant announced he would give £100 to a man who would marry his daughter with his consent. The plaintiff married with defendant’s daughter with the consent of the plaintiff. After the marriage, the plaintiff asked for the money but the defendant refused to pay the same. The plaintiff sued him in the court of law. The Court held this was a mere puff and in the context not to be taken with seriousness because the words were spoken to entire suitors of his daughter.

An offer must not thrust the burden of acceptance on the offeree.

A person cannot say that, if within a certain time, acceptance is not communicated, the offer would be considered as accepted.

The acceptance to offer cannot be presumed from silence.

When A makes an offer to the B, and there is no communication from B about the acceptance of the offer, then A cannot assume that the offer has been accepted by B. Failing to reply to an offer is not acceptance in most cases. This is true even if the offer says silence will be considered acceptance.

‘A’ offers to paint B’s house for $100. If B does not respond to A’s offer, there is no acceptance. If, however, A specifically state to B that, “If I do not hear anything from you by Friday, I will assume you agree to my offer. You reply,” In this case the silence become acceptance on Friday.

In Felthouse v Bindley, (1862) EWHC CP J35 case, the complainant, Paul Felthouse, had a conversation with his nephew, John Felthouse, about buying his horse. After their discussion, the uncle replied by letter stating that if he didn’t hear anymore from his nephew concerning the horse, he would consider acceptance of the order done and he would own the horse. His nephew did not reply to this letter and was busy at auctions. The defendant, Mr Bindley, ran the auctions and the nephew advised him not to sell the horse. However, by accident he ended up selling the horse to someone else. The Court held that there was no contract for the horse between the complainant and his nephew. There had not been an acceptance of the offer; silence did not amount to acceptance and an obligation cannot be imposed by another. Any acceptance of an offer must be communicated clearly. Although the nephew had intended to sell the horse to the complainant and showed this interest, there was no contract of sale. Thus, the nephew’s failure to respond to the complainant did not amount to an acceptance of his offer.

Offer must be distinguished from an invitation to offer.

When a person expresses something to another person, to invite him to make an offer, it is known as an invitation to offer. The objective of the invitation of the offer is to receive offers from people and negotiate the terms on which the contract will be created. In invitation offer, the persons responding to it are making offers.

The menu card of a restaurant is an invitation to put an offer. Price – tags attached to the goods displayed in any showroom or supermarket is also an invitation to offer. If the salesman or the cashier does not accept the price, the interested buyer cannot compel him to sell, if he wants to buy it, he must make a proposal. Other examples of invitation to offer are vacancy job advertisements, auction advertisement, and tender advertisement.

In the Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd, 1952 2 QB 795 case, the court held that in invitation to offer, it was an offer to buy, and no sale would take place until the buyers offer is accepted at the price offered.

The offeror should have the intention to obtain the consent of the offeree.

The offeror must give an offer to offeree with intention of getting consent. The statement like “Marry with me or go to hell” is not an offer.

In Tinn v. Hoffman & Co., (1873) 29 LT 271 case, the defendant wrote to the plaintiff offering to sell a certain quantity of iron at a certain price. On the same day the plaintiff wrote to the defendant that he want to buy the same quantity of iron at the same price. The letters crossed in the Post. The plaintiff contended that there was a concluded contract. But the Court held that the defendant were not liable by the simultaneous offers, each made in ignorance of the other. In these case there was intention to obtain the consent of the offeree. But actual consent or acceptance was not there.

An answer to a question is not an offer.

Conclusion:

In contract law, proposal (offer) and acceptance analysis is a basic process for determining whether two parties have achieved an agreement. A proposal or an offer is a declaration made by one person to another that they are willing to engage in a contract on specific terms without further negotiation. A contract is considered to exist when the offeree conveys his or her acceptance of an offer to the offeror. An offer’s communication is full when the person to whom the offer is made is aware of it, and an acceptance’s communication is full when the acceptance is placed in a transmission channel to the offeror. To establish a binding contract, a proposal can be revoked at any time until final acceptance is given to the proposer.

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