Law of Contracts Communication & Revocation of an Offer

Mishra Raj Shekhar 2nd semester, 1st year B.A., LL.B, Hall ticket no :- 201136, A. P. National Law University

April 2012.

CONTENT 1. Table of cases 2. Introduction 3. Communication 4. Communication of offer (when completes) 5. Way of communication of offer/acceptance 6. Acceptance 7. Requirements for an acceptance 8. Communication and acceptance of General Offers 9. Revocation 10.Revocation of acceptance 11. Revocation of General offer 12. End Notes 13. Bibliography 1 2 2 3 4-5 5-6 6 6 6 7 7 8 9

LIST OF CASES

1.Haji Mohd. Ishaq v. Mohd Iqbal . 2. Upton Rural District Council V.Powell . 3. Lalman vs Gauri Datta. 4. Williams V. Carwardine. 5. Tinn V. Hoffman. 6. Carlill V. Carbolic Smoke Ball Co. 7. Adams v. Lindsel 8. H.P. Gupta V. Hiralal, A.I.R. 9. U.T.I. V. R.K. Shukla,A.I.R. 10. Dunlop V. Higgins 11. Progressive Constructions Ltd. V. Bharat Hydro Power Corp,. 12. Bhagwandas V. Girdhari Lal & Co. 13. Quadricon Pvt. Ltd V. Bajarang Alloys Ltd. 14. Entores Ltd. V. Miles Far East Corporation. 15. Hyde vs Wrench 16. Elliason vs Henshaw. 17. Bihar vs Bengal C & P Works 18.Carlill vs Carbolic smoke ball co. 19. Powel vs Lee. 20. Felthouse vs Bindley 21. Bhagvandas Goverdhandas Kedia vs Girdharilal Pursottamdas & Co 22 Carlill vs Carbolic Smoke Ball Company 23. Henthorn vs Fraser 24. Union of India vs Bhimsen Walaiti Ram 25. Dickinson V. Dodds 26. Ramasgate Victria Hotel Co. V. Montefiore 27. State of M.P. V. Goberdhan Das 28.M/S Bismi Adullah & Sons V. The Regional Manager,F.C.I., Trivandrum 29. Dickinson V. Dodds

Citation and judgements are given in later pages.

INTRODUCTION A contract means an agreements which is enforceable by law[1]. Sec 2(a) of Indian Contract Act 1872 says that when one person signifies his willingness to do or to abstain from doing something to another, with a view to obtaining the assent of that another, he is said to make a proposal [2]. While according to sec 2(b) of the act says that when the person to whom the proposal is made signifies his assent, the proposal is said to be accepted[3]. So one of the most important point of a valid contract is that the party making the proposal or the party accepting the proposal must "signify" their willingness or assent to the other party. So we can say that, a promise cannot come into existence unless the willingness or assent is communicated to the other party. So we can say that communication is a necessary component of a contract, without communication there will be no offer, no acceptance, no agreement so no contract. Communication section 3 of the act defines how an offer is communication, according to the act the communication deemed to be made by an act or omission of the party proposing.. by which he intends to communicate such proposal.. or which has the effect of communicating it[4]. Thus, a proposal may be made by any way, which has the effect of laying before another person his willingness to do nor not do something. so we can say that an offer may be made by words of mouth, or by writing or conducting in a manner, which has the effect of communicating the offer to the offeree [5]. Section 9 explains the way of the communication, it is said to be express. In so far as such proposal or acceptance is made otherwise than in words, promise is said to be implied[6]. In the case Haji Mohd. Ishaq v. Mohd Iqbal[7], the defendants accepted the goods supplied by the plaintiff and also paid part of the price. It was held that the defendants were liable to pay the remaining balance because the proposal and its acceptance were signified by their actions. In Upton Rural District Council V.Powell[8], defendant called the fire brigade(as fire broke out in his farm) believing that he was entitled to the free service. His farm was not within the free zone so was held bound to pay as he asked for the service. In response to that request Upton provided the service, hence service was rendered and it was treated as implied promise.

COMMUNICATION OF OFFER(WHEN COMPLETES) Section 4 of the act specifies when a communication is complete. According to it Communication of a proposal is complete when it comes to the knowledge of the party to whom the proposal is made[9]. For example, if A sends a proposal in the mail to B and if the mail is lost, it can be held that the communication of the proposal is not complete. In the case of Lalman vs Gauri Datta[10], it was held that the reward for the missing child cannot be claimed by a person who traced the child without any knowledge of the announcement. In this case the plaintiff without knowing the reward brought the lost nephew of defendant. . There was no contract between the two in the first place because the proposal never came to the knowledge of the

person who found the child and thus he could never accept it. In Williams V. Carwardine[11], in this case plaintiff knowing the reward announced gave some necessary information of a murder. It was valid contract and it was held that she was entitled to claim. In Tinn V. Hoffman[12] it was held that cross offer cannot be treated as valid contract. In case of general offer(selling of goods) the offer is made considering a large number of people, so anyone who accepts the offer can sue, it was held in Carlill V. Carbolic Smoke Ball Co.[13]. According to sec 4 of the act the Communication of the acceptance is complete, as against the promisor, when it is put in course of transmission to the promisor so as to be out of the power of the acceptor, as against the acceptor, when it comes to the knowledge of the promisor. For example, as soon as B drops a letter of acceptance in mail back to A, A is bound by the promise. However, B is not bound by it unless A receives the acceptance letter. In the case of Adams v. Lindsell [14], it was held that a contract arose as soon as the acceptance was posted by the acceptor. In this case, the plaintiff received the offer to sell wool on 5th and they posted an acceptance, which was received on 9th by the defendants. The defendants, however, had already sold the wool on 8th. The court observed that the contract must arise as soon as the acceptance is posted and is gone out of the reach of acceptor otherwise this will result in an infinite loop. WAY OF COMMUNICATION OF OFFER/ACCEPTANCE

1. By post: offer or acceptance can be made by post. This is proved in several cases like: a) H.P. Gupta V. Hiralal[15] b) U.T.I. V. R.K. Shukla[16] c) Dunlop V. Higgins[17] d) Progressive Constructions Ltd. V. Bharat Hydro Power Corp[18]. 2. By Telephone: it can be communicated through telephone. a) Bhagwandas V. Girdhari Lal & Co.[19] 3. By Telegram/Fax: the communication conveyed by telegram or fax is valid, this is proved in: a) Quadricon Pvt. Ltd V. Bajarang Alloys Ltd[20]. b) Entores Ltd. V. Miles Far East Corporation[21].

Acceptance

Section 7 of the Indian contract act 1872 specifies that an acceptance must be absolute and unqualified. A partial acceptance or a clarification regarding a proposal, or specifying a condition on acceptance is no acceptance.

In the case of Hyde vs Wrench[22] 1840, an offer was made to sell a farm for #1000, which was rejected by the plaintiff, who counter offered #950 for it. This was rejected by the defendant, upon which the plaintiff agreed to pay #1000. However, it was held than the defendant was not bound by any such second acceptance. Section 7 of the act further says that the acceptance must be in some usual and reasonable manner, unless the proposal prescribes the manner in which the acceptance should be made. If the proposal prescribes the manner, and if the acceptance is not done in that manner, the proposer may insist that the acceptance be made in the manner prescribed, and if he fails to do so, he accepts the acceptance. Thus, if the acceptance is sent by any way other than what is prescribed by the proposal, the proposer must reject it in a reasonable time otherwise the proposer accepts it. This is different from English law where a proposal must be accepted in the manner required in the proposal otherwise, the acceptance is invalid. In the case of Elliason vs Henshaw[23] 1819, it was held that an acceptance sent by mail instead of through the wagon that brought the offer, was not valid. Section 8 the Indian contract act specifies that a proposal is accepted when the acceptor performs conditions prescribed for the acceptance or when he accepts the consideration given along with the offer for a reciprocal promise. When acceptance consists of an act as in the case of State of Bihar vs Bengal C & P Works[24] 1954, it was held that, when an order is sent for goods, the posting of goods itself is equivalent to acceptance. No further communication of acceptance is necessary.In the case of Carlill vs Carbolic smoke ball co[25] 1893, it was held that, purchasing and consuming the medicine performs the condition of the proposal. Requirements for an acceptance 1. Acceptance must be from a person to whom the proposal was made. In the case of Powel vs Lee[26] 1908, it was held that communication of an acceptance from an unauthorized person is invalid. 2. Acceptance must be signified to the proposer. In the case of Felthouse vs Bindley[27] 1863, it was held that unless an acceptance is given to the offerer, it is no acceptance. 3. It is required that there be an act that signifies the acceptance. As held in the case of Bhagvandas Goverdhandas Kedia vs Girdharilal Pursottamdas & Co[28] SC AIR 1966, for an acceptance to be completed, a mere mental decision is not sufficient. An external manifestation of the decision is a must. Communication and acceptance of General Offers A general offer, such as an advertisement for the sale of an article at a fixed price, or to give prize to the one that does something first(like reward for the person who will find the lost son by a father), is not made to a particular person. Communication of such as offer is done through public media such as a newspaper. A general offer can be perpetual or end as soon as the condition is fulfilled. No specific acceptance of such offers is usually required. Performing the conditions specified in the offer acts as the acceptance of the offer. For example, in the case of Carlill vs Carbolic

Smoke Ball Company[29] 1893, it was held that it was a general offer and anybody who fulfilled the condition was eligible for the $100 compensation as advertised.

REVOCATION Communication of a revocation is complete as against the party who makes it when it is put in course of transmission to the party to whom it is made, so as to be out of the power of the party who makes it; as against the party to whom it is made, when it comes to the knowledge of the party to whom it is made.For example, if A sends a letter revoking his proposal, it will be complete against A as soon as the letter is dropped in the mailbox and is out of his control. However, the revocation will be held complete against B only when B receives the letter. Further, if B revokes his acceptance by telegram, it will he deemed complete against B as soon as he dispatches the telegram. It will be held complete against A, when A receives the telegram. Section 5 specifies when a proposal and acceptance can be revoked: A proposal can be revoked anytime before the communication of its acceptance is complete as against the proposer but not afterwards[30]. For example, if A propose to B through a letter, A can revoke the proposal as long as B has not posted a letter of acceptance to A. In the case of Henthorn vs Fraser 1862[31], an offer to sell a property was made to a person. This person was to reply to it within 14 days. He lived in another town and he posted an acceptance at 3.50PM, which reached the offerer at 8.30 PM. Meanwhile, the offerer posted the revocation letter at 1 PM, which reached the person at 5.30PM. Thus, the revocation did not reach the offeree before the communication of the acceptance was complete as against the offerer. Thus, the revocation was held ineffective. An acceptance may be revoked anytime before its communication is complete as against the acceptor. For example, B can revoke his acceptance that was sent by letter, by a telegram that reaches A before the acceptance letter. In the case of Union of India vs Bhimsen Walaiti Ram 1969[32], the defendant won an auction for a liquor shop and paid 1/6 of the cost upfront. However, the bid was supposed to be finalized by the financial commissioner, which he had not done. Meanwhile, the defendant failed to pay the remaining amount and the commissioner ordered a re-auction. In the re-auction, less money was realized and the plaintiff sued to recover the shortfall. However, SC held that since the commissioner had not given is final approval for the bid, the communication of acceptance was not complete against the defendant, thus the defendant was free to withdraw or revoke his proposal (i.e the bid). Section 6 specifies the modes of revocation[33]:
1.

by the communication of the notice of revocation by the proposer to the other party. An offerer can revoke offer before acceptance by giving notice of revocation to the other party. This is held in Dickinson V. Dodds[34].

by the lapse of prescribed time in the proposal for acceptance or if no time is prescribed, by the lapse of a reasonable time in communication of the acceptance. An offer can be treated as revoked after the laps of time, if the time is not mentioned than than after a reasonable time it will treated as revoked offer, this was held in Ramasgate Victria Hotel Co. V. Montefiore[35]. 3. by the failure of the acceptor to perform a condition precedent to acceptance. When the offer is subject to some condition precedent, then the condition must be fulfilled. If the acceptor fails to fulfil the condition the offer is said to be revoked (eg- tenders). This is proved in: a) State of M.P. V. Goberdhan Dass[36]. b) M/S Bismi Adullah & Sons V. The Regional Manager,F.C.I., Trivandrum[37]. 4. by death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance. An offer is said to be revoked after the death of proposer. It is held in Dickinson V. Dodds[38].
2.

Revocation of acceptance[39] Revocation of acceptance is a concept of Indian law, it is not prevailed in common law(England). According to section 5 of the act an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. So we can say that English law only allows offerer to revoke the offer while Indian law gives equal opportunity to both offerer as well as acceptor to revoke the offer or acceptance. Revocation of General Offers A general offer can be revoked in the same manner as it was made. For example, if an offer was made by printing in newspaper then it can revoked by printing a revocation in a newspaper. It will be considered complete, even if a person who is ignorant of the revocation, performs the conditions after the revocation is published.

END NOTE
1.R.K. Bangia,contracts-1,pg no-1 2. Contracts Bare Acts ,pg no.-2 3. Avatar Singh contracts & specif relief ,pg no-40. 4. R.K. Bangia,Contracts-1, pg no-45 5. Avatar Singh contracts & specif relief ,pg no-43. 6. R.K. Bangia,Contracts-1, pg no-44. 7.(1978) 2 S.S.C. 493. 8.(1942) 1 ALL ER 220. 9. Contracts Bare Acts ,pg no.-3 10. (1913) 11 ALL. L.J. 489. 11. (1833) 4 B. & Ad. 621. 12. (1873) 29 L.T. 271. 13. (1893) 1 Q.B. 256 at 268. 14. Adams v. Lindsel(1818) 1 B & Ald 681 15. A.I.R. 1971 S.C. 206 16. 2005 S.C. 352 17.(1848) 1 H.L.C. 381 18 A.I.R. 1 H.L.C. 381 19.A.I.R. 1966 S.C. 543. 20. A.I.R. 2008 Bom. 88. 21.(1955) 2 Q.B. 327. 22. Hyde vs Wrench(1840) 49 ER 132 23.(1819) 4 Wheaton 225. 24. Bihar vs Bengal C & P Works 1954 25.(1893) 1 Q.B. 256 at 268. 26. (1908) 99 L.T. 284. 27. (1863) 7 L.T. 835. 28. SC AIR 1966 29 (1893) 1 Q.B. 256 at 268. 30. Contracts Bare Act, pg no-4 31. (1862) 2 Ch27 32.(2000) 1 SCC 168, Para 27 33. Contracts Bare Acts,pg no-4 34. (1876) 2 Ch.D.463 35. (1866) L.R. 1 Ex.,109. 36. A.I.R. 1973 S.C. 1164 37.A.I.R. 1987 Ker. 56. 38.(1876) 2 Ch.D.463. 39. R.K.Bangia.Contracts-1,pg no-53.

BIBLIOGRAPHY Books 1. R.K.Bangia contracts-1, 6 th ed, Faridabad, Allahabad Law Agency,2009. 2. Avtar Singh, Contract & Specific Relief,10 th, Lucknow, Eeatern, Book Company, 2008. 3. Kesava Rao,contracts-1 cases and materials,New Delhi, Lexis Nexis,2004 4. The Indian Contract Act,1872( Bare Act)

Website

1. 2. 3. 4.

www.indianlawcases.com/Act-Indian.Contract.Act,.1872-5160 www.vakilno1.com/bareacts/indiancontractact/s3.html www.lawnotes.in/Sections_in_the_Indian_Contract_Act,_1872 en.wikipedia.org/wiki/Offer_and_acceptance