COMMUNICATION OF OFFER, ACCEPTANCE

AND REVOCATION

PROPOSAL OR OFFER

Definition – Section 2(a)

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.

ESSENTIALS:

1. Signifies to another his willingness to do or abstain from doing anything

2. Has done so with a view to obtain the assent of that other to such act or
abstinence.

From the above definition of offer you will notice that an offer involves the
following elements:

 It must be an expression of readiness or willingness to do or to abstain from

doing something. Thus, it may involve a 'positive' or a 'negative' act. For
example, A offers to sell his book to B for Rs. 30. A is making a proposal
to do something i.e., to sell his book. It is a positive act on the part of the
proposer A. On the other hand, when A offers not to file a suit against B if
the latter pays A the outstanding amount of Rs. 1,000, the act of A is a
negative one i.e., he is offering to abstain from filing a suit.
 It must be made to another person. There can be no 'proposal' by a person
to himself,
 It must be made with a view to obtain the assent of that other person to
such act or abstinence. Thus a mere statement of intention- " I may sell my
furniture if I get a good price" is not a proposal.

The person making the offer is called the 'offerer' or the 'promisor' and the person
to whom it is made is called the 'offeree'. When the offeree accepts the offer, he
is called the 'acceptor' or the 'promisee'. For example, Ram offers to sell his
scooter to Prem for Rs. 10,000 This is an offer by Ram. He is the offerer or the
promisor. Prem to whom the offer has been made is the offeree and if he agrees
to buy the scooter for Rs. 10,000 he becomes the acceptor or the promisee.

A proposal must be distinguished from a mere statement of intention which is not

intended to acquire acceptance. It will be then just ‘invitation to treat’.
OFFER AND INVITATION TO OFFER

BASIS OFFER INVITATION TO OFFER

Meaning When one person When a person expresses

expresses his will to something to another person,
another person to do or not to invite him to make an offer,
to do something, to take it is known as invitation to
his approval, is known as offer.
an offer.

Defined in Section 2(a) of the Indian Not Defined

Contract Act, 1872.

Objective To enter into contract. To receive offers from people

and negotiate the terms on
which the contract will be
created.

Yes No
Essential to
make an
agreement

Consequence The Offer becomes an An Invitation to offer,

agreement when accepted. becomes an offer when
responded by the party to
whom it is made.
HARRIS V. NICKERSON
An auctioneer advertised in a newspaper that a sale of office furniture will be held
on a certain date. A person with the intention to buy furniture came. from a distant
place for the auction, but the auction was cancelled. He cannot file a suit against
the auctioneer for his loss of time and expenses because the advertisement was
merely a declaration of intention to hold auction. It was held that he was not
entitled to the same as there was as yet not contract between the two parties which
could make the defendant liable.

SPENCER V. HARDING
Similarly, a notice that goods will be sold by tender does not amount to an offer.
When a person calls for tenders, it is only an attempt to ascertain whether an offer
can be obtained within such a margin as the seller is willing to adopt .The
tenderers by submitting their tenders make offers and it is for the person inviting
tenders to accept them or not.
In case of Farina v. Fickus, a father wrote to his would be son-in-law that his
daughter would have a share of what he left. It was held that the letter was a mere
statement of intention and not an offer.

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V. BOOTS CASH

CHEMISTS LTD.

Display of goods either in a show window or inside the shop and such goods bear
price tags would not amount to offer to sell goods at prices mentioned. It would
be mere invitation to treat. It was held that if an intending buyer was willing to
purchase the goods at price mentioned, he could make an offer to buy. The
shopkeeper has the option to accept or reject it.

HARVEY. V. FACEY

Defendant was owner of a plot of land named as Bumper Hall Pen. The plaintiff
interested in purchasing the same sent a telegram to D.

Plaintiff- “will you sell us the Bumper Hall Pen? Telegraph us the lowest price”

Defendant- “Lowest price for Bumper hall pen is 900 pounds”

Plaintiff- “We agree to buy Bumper Hall Pen for 900 pounds asked by you. Please
send us your title deeds”

Defendant refused to sell the land. It was held that exchange of above telegrams
had not resulted in a contract. The quotation of price was not held to be an offer.
GIBSON V. MANCHESTER CITY COUNCIL
There is no offer where the owner of a house states the price at which he may be
prepared to sell in response to an enquiry form sent by an interested buyer.

In Adikanda Biswal v. Bhubaneswar Development Authority, when a

development authority made an announcement for allotment of plots on first
come first serve basis on payment of full consideration. An application against
this with full consideration was only considered to be an offer, as the
Development authority only gave an invitation to offer, and the offer can only be
formalized into a contract when it is accepted by the development authority.

INTENTION TO CREATE LEGAL RELATIONSHIP

BALFOUR V. BALFOUR

The Defendant who was employed on a government job in Ceylon, went to

England with his wife on leave. For health reasons his wife was unable to
accompany the husband again to Ceylon. The husband promised to pay 30 pounds
per month to his wife as maintenance for the period she had to live apart. Husband
failed to pay his amount and was sued by wife. It was held that there was no
intention to create legal relationship.

Lord Atkin observed- “one of the most usual forms of agreement which do not
constitute a contract appears to me to be the arrangements which are made
between husband and wife. They are not contracts because the parties did not
intend that they should be attended by legal consequences.”

MERITT V. MERITT

Husband and wife were joint owners of a building which was subject to mortgage
to a building society. Subject to mortgage to a building society. The husband left
the matrimonial home to lie with another woman. At that time, at the insistence
of the wife, husband signed a note saying “wife will pay all outstanding amount
in respect of the house and in return, I will agree to transfer the property into your
sole ownership”. It was held that it was clear that parties intended to create legal
relationship and therefore Husband was bound by the contract.
HOW AN OFFER IS MADE?
SECTION 3: An offer can be made by act or omission of the party proposing by
which he intends to communicate such proposal or which has the effect of
communicating it to other. An offer can be made by an act, by words or by
conduct.

KINDS OF OFFER:

1. EXPRESS OFFER- Section 9- when the offeror expressly communicates

the offer i.e. by written or spoken word. When ‘A’ says to ‘B’, “will you
purchase my car for Rs 2,00,000”? Similarly when A writes a letter to B
offering to sell his car to him for Rs. 40,000, it is also an express offer by
A.
2. IMPLIED OFFER- Section 9- An offer may be derived from the actions
or circumstances of the parties. There is an implied offer by the transport
company to carry passengers for a certain fare when a transport company
operates a bus on a particular route. public transport like DTC in Delhi or
BEST in Bombay runs buses on different routes to carry passengers who
are prepared to pay the specified fare. This is an implied offer. Similarly,
when a coolie picks up your luggage to carry it from railway platform to
the taxi, it means that the coolie is offering his service for some payment.
This is an implied offer by the coolie. A bid at an auction is an implied
offer to buy.

Upton Rural District v. Powell

The defendant called a fire brigade assuming that those services would be free
to him, however it was found that his Farm did not come under that of Upton.
The court held that the truth of the matter is that the Defendant wanted the
services of Upton, he asked for the services of Upton and in response to that
they offered their services and they were rendered on an implied promise to
pay for them.
TO WHOM AN OFFER IS MADE?
According to law, an offer can be accepted only by the person to whom it is made.
must know how to identify the person to whom the offer has been made. From
this point of view, an offer may be 'specific' or 'general'.

1. SPECIFIC OFFER- It is the offer made to a specific person or group of

persons and can be accepted by the same, not anyone else. ‘A’ offers to sell
his house to ‘B’. Thus, a specific offer is made to a specific person, and
only ‘B’ can accept the offer. When an offer is made to a definite person
or particular group of persons, it is known as specific offer and it can be
accepted only by that definite person or that particular group of persons to
whom it has been made. For example, A offered to buy certain goods from
B at a certain price. This offer is made to a definite person B. Therefore, if
goods are supplied by P, it will not give rise to a valid contract.
(Boulton v. Jones)
wherein the Plaintiff had taken the business of one Brocklehurst, the
defendant used to have business with Brocklehurst and not knowing about
the change in ownership of business, sent him an order for certain goods.
The Defendant came to know about the change only after receiving an
invoice, at which point he had already consumed the goods. The Defendant
refused to pay the price, as he had a set off against the original owner, for
which the plaintiff sued him.

The Judges gave a unanimous judgement holding the defendant not liable.
Pollock CB held that the rule of law is clear, if you intend to contract with
A, B cannot substitute himself as A without your consent and to your
disadvantage. It was also held that whenever a person makes a contract
with a specific personality, a specific party, so to say, for writing a book,
for painting a picture or for any personal service or if there is any set off
due from any party, no one has the authority to come in and maintain that
he is the party contracted with.

2. GENERAL OFFER- A general offer is not made by any specified party.

It is one that is made by the public at large. Any member of the public can,
therefore, accept the offer and have the right to the rewards/consideration.
‘A’ advertises in the newspaper that whosoever finds his missing son
would be rewarded with 2 lakh. ‘B’ reads it and after finding the boy, he
calls ‘A’ to inform about his missing son. Now ‘A’ is entitled to pay 2 lakh
to ‘B’ for his reward. On the other hand, if an offer which is not made to a
definite person, but to the world at large or public in general, it is called a
general offer. A general offer can be accepted by any person by fulfilling
the terms of the offer. Offers of reward made by way of advertisement for
finding lost articles is the most appropriate example of a general offer. For
example, B issues a public advertisement to the effect that he would pay
Rs. 100 to anyone who brings hack his missing dog. This is a general offer
and any member of the public can accept the said offer by finding the lost
dog.

(Carlill v Carbolic Smoke Ball Company)

A company by the name Carbolic Smoke Ball offered through an

Advertisement to pay 100 Pounds to anyone who would contract increasing
epidemic Influenza, colds or any disease caused by cold after taking its
Medicine according to the prescribed instructions. It was also added that
1000 Pounds have been deposited in Alliance bank showing our sincerity
in the matter. One customer Mrs Carlill used the medicine and still
contracted Influenza and hence sued the company for the reward. The
Defendants gave the argument that the offer was not made with an intention
to enter into a legally binding agreement, rather was only to Puff the sales
of the company. Moreover, they also contended that an offer needs to be
made to a specific person, and here the offer was not to any specific person
and hence they are not obliged to the Plaintiff.

Setting aside the arguments of the Defendant, the bench stated that in cases
of such offers i.e- general offers, there is no need for communication of
acceptance, anyone who performs the conditions of the contract is said to
have communicated his/her acceptance, and moreover, the money
deposited by the Defendant in Alliance Bank clearly shows that they
intended to create a legally binding relationship.

Example: A advertise in the newspapers that he will pay rupees one

thousand to anyone who restores to him his lost son. B without knowing of
this reward finds A’s lost son and restore him to A. In this case since B did
not know of the reward, he cannot claim it from A even though he finds
A’s lost son and restores him to A.

In India also, in the case of Harbhajan Lal v. Harcharan Lal (Lalman

Shukla v. Gauri Dutt case), the same rule was applied. In this case, a young
boy ran away from his fathers home. The father issued a pamphlet offering
a reward of Rs 500 to anybody who would bring the boy home. The
plaintiff saw the boy at a railway station and sent a telegram to the boys
father. It was held that the handbill was an offer open to the world at large
and was capable to acceptance by any person who fulfilled the conditions
contained in the offer. The plaintiff substantially performed the conditions
and was entitled to the reward offered.
OTHER TYPES OF OFFER

 CROSS OFFER-Two offers which are similar in all respects, made by

two parties to each other, in ignorance of each other's offer are known as
'cross offers". Cross offers do not amount to acceptance of one's offer by
the other and as such no contract is concluded. For example, A of Delhi,
by a letter offers to sell his house to B of Bombay for Rs. 10 lakh. At the
same time, B of Bombay also makes an offer to A to buy A's house for Rs.
101 lakh. The two letters cross each other. There is no concluded contract
between A and B because both the parties are making offers. If they want
to conclude a contract, at least one of them must send his acceptance to the
offer made by the other.

Tinn v. Hoffman

The defendant wrote to the complainant an offer to sell him 800 tons of
iron at 69s per ton, at the same time the complainant also wrote to the
defendant an offer to buy the iron at similar terms. The issue in this case
was that, was there any contract between the parties, and would
simultaneous offers be a valid acceptance. The court held that these were
cross offers that were made simultaneously without knowledge of one
another and would not bind the parties.

COUNTER OFFER-A counter-offer is an answer given to an initial offer.

A counter-offer means that the original offer has been refused and replaced
by another. The counteroffer offers three choices to the original offerer;
accept, refuse, or make another offer. An example of this would be if A
offers B a car for 10 Lakhs, B agrees to buy for 8 Lakhs, this amounts to a
counter offer and it would mean a rejection of the original offer. Later on,
if B agrees to buy for 10 Lakhs, A may refuse.

Hyde v Wrench

an offer to sell a farm for 1000 Pounds was rejected by the Plaintiff, who
offered 950 for it. Subsequently the Plaintiff gave an acceptance to the
original offer. Holding that the Defendant was not bound by a contract, the
court said that the Plaintiff accepted the original offer of buying the farm
at the price of 1000 pounds, it would have been a completely valid contract
, however he gave a counter proposal to it, thus rejecting the original offer.

 STANDING, OPEN AND CONTINUOUS OFFER- Sometimes an offer

may be of a continuous nature. In that case it is known as standing offers,
A standing offer is in the nature of a tender. Sometimes a person or a
department or some other body requires certain goods in large quantities
from time to time. In such a situation, it usually gives an advertisement
inviting tenders.

An advertisement inviting tenders is not an offer but a mere invitation to

offer. It is the person submitting the tender to supply goods or services who
is deemed to have made the offer, when a particular tender is accepted or
approved, it becomes a standing offer. The acceptance or approval of a
tender does not however, amount to acceptance of the offer. It simply
means that the. offer will remain open during a specified period and that it
will be accepted from time to time by placing specific orders for the supply
of goods. Thus each order placed creates a separate contract. The offerer
can however withdraw his offer at any time before an order is placed with
him. Similarly, the party who has accepted the tender is also not bound to
place any order unless there is an agreement to purchase a specified
quantity. For example,

A agrees to supply coal of any quantity to B at a certain price as will be

ordered by B during the period of 12 months. It is a standing offer. Each
order given by B will be an acceptance of the offer and A will be bound to
supply the ordered quantity of coal. A can however, revoke the offer for
future supplies at any time by giving a notice to the offeree.

An Offer which remains open for acceptance over a period of time is called
a standing offer. Tenders that are invited for supply of goods is a kind of
Standing Offer. In Percival Ltd. V. London County Council Asylums and
Mental deficiency Committee, the Plaintiff advertised for tenders for
supply of goods. The defendant took the tender in which he had to supply
to the company various special articles for a period of 12 months. In-
between this the Defendant didn’t supply for a particular consignment. The
Court held that the Tender was a standing offer that was to be converted
into a series of contracts by the subsequent acts of the company and that an
order prevented the possibility of revocation, hence the company
succeeded in an action for breach of contract.
ESSENTIALS OF A VALID OFFER- SECTION 3 & 4
1) Offer may be expressed or implied – An offer may be expressed or may be
implied from the conduct of the parties or circumstances of the case.

2) Offer may be specific or general –

a) A specific offer is one which is made to a particular person. It can be accepted
by the person to whom it has been made, no one else can accept such an offer.
b) A general offer is an offer made to the public at large.

3) Offer must create Legal Relations –An offer will not become a promise even
after it has been accepted unless it is made with a view to create legal obligations.
It is so because the very purpose of entering into an agreement is to make it
enforceable in a court of law. A mere social invitation cannot be regarded as an
offer because if such an invitation is accepted it will not give rise to any legal
relationship. For example, A invites his friend B to a dinner and B accepts the
invitation. If B fails to turn up for dinner, A cannot go to the court to claim his
loss. In social agreements the presumption is that the parties do not intend to
create legal relationship. This point is very well illustrated by the case of Balfour
v, Balfour. In business agreement, however, it is presumed that it will be followed
by legal consequences. But if the parties to a business agreement also agree that
none of them shall go to court in case of its breach, then even such an agreement
will not be treated as a contract

4) Offer must be certain, definite, clear and not Vague – The terms of an offer
should not be vague (not clear / confusing). No contract can be formed if the
terms of the offer are vague, loose and indefinite. The reason is quite simple.
When the offer itself is vague or loose or uncertain, it will not be clear as to what
exactly the parties intended to do. A vague offer does not convey what it exactly
means. For example, A promises to buy one more horse from B if the horse
purchased earlier proves lucky. This promise cannot be enforced because it is
loose and vague. Similar is the case when A agrees to sell his car to B for Rs.
30,000 after making necessary repairs. What are necessary repairs is a debatable
question and as such the offer is not valid. If, however, the terms of the offer are
capable of being made certain, the offer is not regarded as vague. For example, A
offers to sell to B "a hundred quintals of oil". The offer is uncertain as there is
nothing to show what kind of oil is intended to be sold. But, if A is a dealer in
coconut oil only, it is quite clear that he wants to sell coconut oil. Hence, his offer
is not vague. It is a valid offer.

5) Offer must be Communicated to the Offeree (section 4)– No offeree can

accept the proposal without knowledge of the offer. An offer must be
communicated to the person to whom it is made. The first part of the definition
of proposal emphasises this fact by saying that When one person signifies to
another his willingness to or to abstain….’ It means that an offer is complete only
when it is communicated to the offeree. You should note that a person can accept
the offer only when he knows about it. An offer accepted without his knowledge
does not confer any legal rights on the acceptor. There can be no valid acceptance
unless there is knowledge of the offer.

Lalman Shukla v. Gauri Dutt

G sent his servant E to trace his lost nephew. When the servant had left, G
announced a reward of Rs. 501 to anyone who traces the boy. L found the boy
and brought him home. When E came to know of the reward, he decided to claim
it. It was held that L was not entitled to the reward because he did not know about
the offer when he found the missing boy. It is also necessary that the offer is
communicated by the offerer himself or by his authorised agent. If a person comes
to know about the offer from some other source, he cannot make it a binding
contract by accepting it.

For example, A writes a letter to B at Bombay offering to sell his house. This
letter is misplaced and it never reaches B. But, a common friend P had informed
B about the said letter of A containing the offer. B sends his letter of acceptance
to A. In such a situation, no contract will be formed.

6) A statement of price is not an offer

7) Offer cannot contain a Negative Condition – Offer should not contain a

term the non-compliance of which would amount to acceptance. The offer
should not impose on the offeree an obligation to reply. While making the offer
the offerer cannot say that if the offer is not accepted before a certain date it will
be presumed to have been accepted. Unless the offeree sends his reply, no
contract will arise. For example, A writes to B "I offer to sell my scooter to you
for Rs. 7,000. If I do not receive a reply by Wednesday next, I shall assume that
you have accepted the offer." If B does not reply, it shall not imply that he has
accepted the offer. Hence, there will be no contract. However, the offeror can lay
down the mode by which the acceptance is to be communicated. Example: A
offers to sell his cow to B for 5000/-. If the offer is not rejected by Monday it will
be considered as accepted. This is not a valid offer. Offer can be conditional.

8) A mere statement of intention is not an offer- The offer must be

distinguished from a mere declaration of intention. Sometimes a person
may.make a statement without any intention of creating a binding obligation.
Such statement or declaration only indicate that he is willing to negotiate and an
offer will be made or invited in future.
9) Special terms or conditions in an offer must also be communicated: The
offerer is free to lay down any terms and conditions in his offer, and, if the other
party accepts the offer then he will be bound by those terms and conditions. The
important point is that if there are some special terms and conditions they should
also be duly .communicated, The question of special terms arises generally in
case of standard form of contracts. For example, the Life Insurance
Corporation of India has printed form of contracts containing large number of
terms and conditions. Similarly, standard contracts are made with railways,
shipping companies, banks, hotels, drycleaners etc. Such big companies are in a
position to exploit the weakness of the individual by including certain terms and
conditions in the contract which limit their liability. In order to protect the interest
of the general public it is provided thar the special terms of the offer must be duly
brought to the notice of the offeree. If this is not done the offeree will not be
bound by those terms. This can be done either by expressly communicating the
special terms of by giving a reasonable notice about the existence of the special
terms i.e., by drawing his attention to them by printing in red ink or bold letters
'for' conditions see back' or 'P.T.O.' on the face of the printed form or ticket. If
this is not done, the offeree will not be bound by them.

The leading case on this point is that of Handerson v. Stevens. In the case A
purchased a steamer ticket for travelling from Dublin to Whitehaven and this fact
was printed on the face of the ticket. On the back of the ticket . certain conditions
were printed, one of which excluded the liability of &e company for loss, injury
or delay to the passenger or his luggage. A never looked at the back of the ticket
and there was nothing to draw his attention to the conditions printed on the back
side. His luggage was lost due to the negligence of the servants of the shipping
company. It was held that A was entitled to claim compensation for this loss of
his luggage in spite of the exemption clause because there was no indication on
the face of the ticket to draw his attention to the special terms printed on the back
of the ticket.

You must note that if the special terms and conditions have been brought to the
notice of the offeree, he will be bound by them even if he has not read them or is
an illiterate. In the case of Parket v. South Eastern Railway Company, P deposited
his bag in the cloakroom at a railway station. On the face of the receipt the words
"see back" were printed. One of the conditions printed on the back limited the
liability of the railway company for any package to f 1. The bag was lot! and P
claimed f 24. Sh. 10, the actual value of the bag. P admitted knowledge of the
conditions printed on the back, but denied having read it. It was held-that P was
bound by the print on the back side even though he had not read them because
the railways had given reasonably sufficient notice on the face of the ticket as to
the existence of conditions. Therefore, P could recover f 10 only.

The same rule is applicable even where the special conditions are printed in a
language which the acceptor does not understand provided his attention has been
drawn to them in a reasonable manner. In such a situation, it is the acceptor's duty
to ask for the translation of the conditions before accepting the offer and if he did
not ask, he is presumed to know them and he will be bound by them.

You must also note that the special terms and conditions should be brought to the
knowledge of the offeree before the contract is concluded and not afterwards. A
subsequent communication will not bind the acceptor unless he himself agrees
thereto,, For example, a couple hired a room in a hotel for a week. When they
entered the room they found a notice on the wall disclaiming the owners liability
for damage, loss or theft of articles. Some of their items- were stolen. The owner
of the hotel !vas held liable since the notice was not a part of the contract as it
came to the knowledge of the client after the contract has been entered into.
(Olley v. Marlborough Court Ltd.)

Finally, the terms and conditions must be reasonable. A term is considered to be

unreasonable if it defeats the very purpose of the contract or if it is against the
public policy. Thus, if the terms and conditions in a standardised contract are
unreasonable, then the other party will not be bound by them. For example, if a
drycleaner limits his liability to 20 per cent of the market price of the article in
case of loss, the customer will not be bound by this conditions because it means
that the drycleaner can purchase garments at 20 per cent of their price.

9) Offer must be distinguished from an invitation to offer-An offer must be

distinguished from an invitation to receive an offer to make on offer or to
negotiate. In the case of invitation to offer there is no intention on the part of the
person sending out the invitation to obtain the assent of the other party to such
invitation. On the other hand, offer is a final expression of willingness by the
offeror to be bound by his promise, should the other party choose to accept it. In
case of an invitation to offer, his aim is to merely circulate information of his
readiness to negotiate business with anybody who on such information comes to
him, An invitation to offer is not an offer in the eyes of law and does not become
a promise on acceptance. You must have noticed that shopkeepers generally
display their goods in showcases with price tags attached. The shopkeeper in such
cases is not making an offer so that you can accept it. He is in fact inviting you to
make an offer which he may or may not accept. You cannot compel the
shopkeeper to sell the goods displayed in the showcase at the market price.
Similarly, quotations, catalogues, price list, advertisements in a newspaper for
sale or a circular sent to prospective buyers do not constitute an offer.
(Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd)

REVOCATION OF AN OFFER
Section 5- A proposal may be revoked at any time, before the communication of
its acceptance is complete as against the proposer but not afterwards.

Union of India v. Gopal Chandra

A prospective resignation is an offer to quit the post and the same can be revoked
or withdrawn before the offer is accepted by a competent authority.

Revocation of offer means withdrawal, cancellation or lapse of offer.

According to Sec 6 of this act, Offer can be revoked under the following
circumstances:

a) By notice

b) By lapse of time

c) Death or insanity of offeror

d) Non‐fulfilment of prerequisite conditions

e) by counter offer

f) by compliance of prescribed mode or manner

When is communication of offer is complete?

1. The communication of offer is complete when it comes to the knowledge

of the persons to whom it is made.
2. An offer may be communicated either by words written or spoken or can
be inferred from conduct of the parties.
3. When an offer is made by post, its communication will be complete when
the letter containing communication reaches the person to whom its is
made.
ACCEPTANCE
Definition – Section 2(b)
“When the person to whom an offer is made signifies his assent thereto the
proposal is said to be accepted, A proposal when accepted becomes a promise.”

For example, A offers to sell his book to B for Rs. 20.B agrees to buy the book
for Rs. 20.This is an acceptance of A's offer by B.

It is aptly said by Anson that “acceptance is to offer what is a lighted match to

a train of gunpowder”.
This statement is described by Anson which is related to the revocation of
proposal & acceptance. The statement basically comes under English law. The
segregated explanation is as under;

Gunpowder = offer
lighted matchstick = acceptance
This means that when a matchstick is lighted to a train of gunpowder and it
explodes then something has happened which destroyed everything. Similarly
when an offer is accepted, so then it will not be revoked. But as we are concerned
with a lighted matchstick is to show the gunpowder remains to insert and cannot
be removed.

In short when the offer is accepted then the contract comes into legal existence,
this ensures that once the acceptance is made it cannot be revoked. Because the
offer is conditional but acceptance cannot be conditional. But in our Indian
contract act, acceptance can be revoked by the quick means of communication.
So that the offeree can learn something about before his/her acceptance.

When an offer is made to the other party (offeree) then for the contract to come
in force there is a compulsion that that offer should be accepted by the offeree
and he must communicate his acceptance to the offeror otherwise it would be
assumed that there was no meeting of minds for the purpose of the contract to
come in force. But at the same time, there is a condition attached to it that is that
one can accept the offer only in its entirety and not conditionally.

If ‘A’ makes an offer to ‘B’ then he must accept the offer made by the offeror in
the same terms and conditions as mentioned and if he makes some alterations to
the original offer then he is deemed to have made a counteroffer and then the onus
is on ‘A’ to accept or reject that counter offer.
As mentioned above the offeree must communicate his acceptance of the offer to
the offeror. Here it is meant that the offeree must make the offeror informed that
he is accepting the offer by either some express communication or by conduct.

Who Can Accept?

An offer can be accepted only by the person or persons to whom it is made. An
offer made to a particular person (specific offer) can be accepted only by him and
none else. The rule of law is that if A wants to enter into a contract with B, then
C cannot substitute himself for B without A's consent. In the case of Boulton v.
Jones, A sold his business t o B but this fact was not known to an old customer
C. C sent an order for goods to A by name. B supplied the goods to C. It was held
that there was no contract between B and C because C never made any offer to
B. If an offer is made to the world at large (general offer) any person can accept
the offer provided he has the knowledge of the offer. You have seen in Carlill v.
Carbolic Smoke Ball Co's case' that the lady accepted the offer by using the
smoke balls. Similarly, in case a reward has been offered for giving information
about missing person or a lost article, any person who gives the necessary
information first, shall be entitled to the reward.

How is an Acceptance Made?

You know that an offer may be either express or implied. Similarly, the
acceptance may also be either express or implied. When the acceptance is given
by words spoken or written, it is called an 'express acceptance'. For example, A
offers to sell his book to B for Rs. 20.B may accept this offer by stating so orally
or by writing letter to A. The acceptance may also be implied by conduct. For
example, A offers a reward of Rs. 100 to anyone who traces his lost dog. B, who
was aware of this offer, finds the dog, he is entitled to the reward as he accepted
the offer by doing the required act. Take another example. A enters into DTC bus
for going to Rajghat. This is an implied acceptance by A and he is bound to pay
the fare.
ESSENTIALS/LEGAL RULES OF VALID ACCEPTANCE

1) Acceptance must be absolute and unqualified: Section 7 (1) of the Indian

Contract Act provides that 'In order to convert a proposal into a promise, the
acceptance must be absolute and unqualified .....' This is so because a qualified.
and conditional acceptance amounts to a counter offer leading to the rejection of
the original offer. No variation should be made by the offeree in the terms of
offer. If while giving acceptance, any variation is made in the terms of the offer
the acceptance will not be valid and there will be no contract. For example, A
offers to sell his scooter to B for Rs. 8,000 and B agrees to buy it for Rs. 7,500.
It is a counter offer and not an acceptance. If, later on, B is ready to pay Rs. 8,000
A is not bound to sell his scooter, because E's counter offer has put an end to the
original offer.

Further an offer must be accepted in toto. If only a part of the offer is accepted
the acceptance will not be valid. For example, G offers to sell 10Q quintals of
wheat to B at a certain price. B accepts to buy70quintals only. It is not a valid
acceptance since it is not for the whole of the offer. Thus, an offer should be
accepted as it is, without any reservations, variations or conditions. Any variation,
howsoever unimportant it may be, makes the acceptance invalid.

Sometimes, a person may accept the offer "subject to a contract" or "subject to

formal contract" or "subject to contract to be approved by the solicitors". In such
cases no contract arises because a condition remains to be performed in the future.
For example, A's bid was provisionally accepted at an auction sale. The
acceptance was 'subject to confirmation'. Before confirmation, however, A
withdrew his bid. It was held that because acceptance was not absolute, it was
subject to confirmation, A can withdraw his bid before it is confirmed. (HYDE
V. WRENCH)

2) Acceptance must be communicated: You have learnt in the definition of .

acceptance that it should be signified. In other words, the acceptance is complete
only when it has been communicated to the offerer. A mere mental acceptance,
not evidenced by words or conduct, is no acceptance.

In BROGDEN V. METROPOLITAN RAILWAY CO.'S case an offer to

supply coal to the railway Co. was made. The manager wrote on the letter
'accepted', put it in his drawer and forgot all about it. It was held that no contract
was made because acceptance was not communicated.

Communication of acceptance does not mean that the offerer must come to know
about the acceptance. Even if the letter of acceptance is lost in transit or delayed,
the offerer is bound by the acceptance because the acceptor has done all that is
required of him.
You should note that the offerer, while making an offer, cannot impose a burden
on the other party to communicate his refusal or rejection. He can certainly
prescribe the manner in which the offer is to be accepted. But, he cannot lay down
the manner in which it is to be refused. For example, the offerer cannot say that
if he does not hear anything from the other party within seven days, the offer will
be deemed to have been accepted.

FELTHOUSE V. BINDLEY

In this case, F offered by a letter to buy his nephew's horse for £ 30 saying, "If I
hear no more about him, I shall consider the horse is mine". The nephew sent no
reply at all but told Bindley, his auctioneer, not to sell that particular horse as he
intends to sell it to his uncle. Bindley, however, sold the horse by mistake. F sued
the auctioneer for conversion. It was held that F will not succeed as his nephew
had not communicated acceptance and hence there was no contract.

3) Acceptance must be in a prescribed or reasonable mode: Where the offerer

has prescribed a mode of acceptance, it must be accepted in that very manner. If
the offer is not accepted in the prescribed manner it is up to the offerer to accept
or reject such acceptance. But when the acceptance is not in the prescribed
manner and the offerer wants to reject it, he must inform the acceptor within a
reasonable time that he is not bound by acceptance since it is not in the prescribed
manner. If he does not do so within a reasonable time, he will be bound by the
acceptance. For example, A makes an offer to B and says " send your acceptance
by telegram" . B sends his acceptance by a letter. A can refuse this acceptance on
the ground that it was not accepted in the prescribed manner. But, if A fails to
inform B within a reasonable time he will be deemed to have accepted the
acceptance by ordinary letter and it will result in the formation of a valid contract:
If, however, no mode has been prescribed, it should be accepted in some usual
and reasonable manner.

4) Acceptance must be given within a prescribed or within reasonable time:

Sometimes the offerer while making the offer fixes the period within which the
offer should be accepted. In such a situation, the acceptance must be given within
the prescribed time and if no time is prescribed, it should be . accepted within a
reasonable time. What is the reasonable time depends upon the facts of the case.

RAMAGATE VICTORIA HOTEL CO. V. MONTEFLORE

Where an offer to buy shares of a company was made in June but the acceptance
was communicated in November, it was held that because acceptance was not
given within a reasonable time the offer had elapsed.
5) Acceptance must be given before the offer lapses or is withdrawn: The
acceptance must be given while the offer is in force. Once an offer has been
withdrawn or stands lapsed, it cannot be accepted. For example, A offered, by a
letter, to sell his car to B for Rs. 40,000. Subsequently, A withdraws his offer by
a telegram, which was duly received by B: After the receipt of the telegram, B
sends his acceptance to A. This acceptance is not valid.

6) Acceptance must be given only by the person to whom the offer is made
or by a person who has the authority to accept: For an acceptance to be valid
it should be communicated by the offeree himself or by a person who has the
authority to accept. Thus, if acceptance is communicated by an unauthorised
person, it will not give rise to legal relations.

POWELL V. LEE

The case of Powell v. Lee can be mentioned in support of this point. In this case
P applied for the post of a headmaster in a school. The managing committee
passed a resolution appointing P to the post but this decision was not
communicated to P. However, a member of the managing committee, in his
individual capacity and without any authority, informed P about the decision.
Subsequently, the managing committee cancelled its resolution and appointed
someone else. P filed a suit for breach of contract. It was held that he was not
informed about his appointment by some authorised person, hence there was no
communication of acceptance.

7) Rejected offer can be accepted only on renewal

COMMUNICATION OF OFFER AND ACCEPTANCE

You have learnt that offer and acceptance have to be communicated. Unless an
offer is communicated it cannot be accepted. Similarly, an acceptance which is
not communicated does not create any legal relations. Now the question arises as
to when the communication of offer and acceptance is regarded as complete so
as to bind the concerned parties.

When the contracting parties are face to face, there is no problem regarding
communication, because there is instantaneous communication of the offer and
its acceptance. The problem arises when parties are at a distance from each other
and they have to do it through post. In such a situation, it is very important for us
to know the exact time when communication of the offer and acceptance is
complete because as soon as the communication is complete the parties loose the
right of withdrawal or revocation. Let us now take up the rules regarding the
communication of the offer and acceptance.

COMMUNICATION OF OFFER

According to Section 4 of the Contract Act, the communication of an offer is

complete when it comes to the knowledge of the person to whom it is made i.e.,
when the letter containing the offer reaches the offeree. For example, A of Delhi
sends a letter by post to B of Bombay offering to sell his house for Rs. 10 lakh.
The letter is posted on April 5, and this letter reaches B on April 7. The
communication of the offer is complete on April 7. In the above example, if the
letter containing the offer never reaches B, but B comes to know about the
proposal from some other source and sends his acceptance, it will not amount to
proper communication of the offer and so no contract will arise.

COMMUNICATION OF ACCEPTANCE WHEN COMPLETE

The rules regarding communication of acceptance have to be studied from the

point of view of offerer and as. well as the offeree because the communication of
acceptance is complete at different times for the offerer and the offeree.

According to Section 4 of the Contract Act, " the communication of acceptance

is complete :

(a) 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, and

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

Thus, the offerer becomes bound by the acceptance as soon as the letter of
acceptance is duly posted by the acceptor, but the acceptor is bound by his
acceptance only when the letter of acceptance reaches the offerer. It is quite
interesting to note that a valid contract arises even if the letter of acceptance is
lost in transit or is delayed. You should remember that the offerer will be bound
by the acceptance only when the letter of acceptance was correctly addressed,
properly stamped and actually posted. Thus, if the acceptance letter is not
correctly addressed, it will not be binding upon the offerer.

From the above rules, it must be amply clear that so far as the acceptor is
concerned, he is not bound by acceptance till it reaches the offerer. You must
have noted that there is a time gap between the two dates, the date on Which the
letter of acceptance is posted and the date on which the offerer actually receives
it. This time gap can be utilised by the acceptor to withdraw his acceptance by a
speedier means of communication.
In the above example if B of Bombay sends his acceptance by post on April 10
the communication of acceptance is complete against A on April 10 i.e., when
the letter of acceptance is posted, but the communication of acceptance shall be
complete as against B only when this letter reaches A. Suppose A receives the
letter of acceptance on April 12, at 11 a.m. then B will be bound by his acceptance
on April 12 only. 1n.other words, the law has given a chance to the acceptor to
withdraw his acceptance.

CONTRACTS OVER TELEPHONE

A contract by telephone is treated on the same principle as an oral agreement

made between two parties when they are face to face with each other. Thus, when
offers of acceptance are made on phone, the parties are in direct contact and no
contract is concluded until the offerer actually receives or hears the acceptance
i.e., the contract is made only when the acceptance, is clearly heard and
understood by the offerer. The acceptor must ensure that his acceptance is
properly received by the offerer. Normally when the parties disconnect they
usually utter words as 'Bye', 'O.K.', etc. This indicates that the parties have heard
what they wanted to communicate. But, if the conversation is interrupted before
acceptance has been given, the contract is not concluded. For example, A made
an offer to B over telephone. While B was conveying his acceptance, the line
suddenly went dead and A could not hear anything. Thus, no contract was
concluded. Then, B makes another attempt and this time he could convey his
acceptance. The contract is said to be concluded on the second attempt.
REVOCATION OF OFFER AND ACCEPTANCE
The term 'revocation' simply means 'taking back or 'withdrawing'. Both offer and
acceptance can be revoked or withdrawn. But, it is possible only upto a certain
stage. Let us now study the rules regarding the revocation of offer and acceptance.

REVOCATION OF OFFER

According to Section 5 of the Contract Act "a proposal may be revolted at any
time before the communication of its acceptance is complete as against the
proposer, but not afterwards." You know that communication of acceptance is
complete as against the offerer when it is put in a course of transmission so as to
be out of his power. Hence, an offer can be revoked at any time before the
letter of acceptance has been posted. For example, A offers by letter to sell his
car to B

at a certain price. A may revoke his offer at any time before B posts his letter of
acceptance, but not afterwards. Once the Letter of acceptance has been posted,
the offer cannot be revoked. Therefore, when the offerer wishes to revoke his
offer, he must do so by a speedier mode of communication so that the revocation
notice reaches the offeree before he posts his letter of acceptance.

Revocation must always be expressed and move from the offerer himself or a
duly authorised agent. Notice of revocation of a 'general offer' must be given
through the same channel by which the original offer was made.

REVOCATION OF ACCEPTANCE

Section 5 of the Contract Act further provides that 'an acceptance may be revoked
at any time before the communication of the acceptance is complete as against
!he acceptor, but not afterwards.' You have already learnt that the
communication of acceptance is complete as against the acceptor when it comes
to the knowledge of the offerer. Hence, the acceptor can revoke his acceptance
at any time before his letter accepting the offer reaches the offerer. Once the
letter acceptance reaches the offerer, the acceptance cannot be revoked. Thus, for
effective revocation of acceptance it is necessary that the acceptor should adopt
some speedier mode of communication so that his revocation reaches the offerer
before the letter of acceptance. For example, A offers by a letter dated February
2, sent by post, to sell his house to B at a certain price. B accepts the offer on
February 6 by a letter sent by post. The letter reaches A on February 8 at 2 p.m.
Here B may revoke his acceptance at any time before 2 p.m. on February 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 offerer 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 offerer 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.

COMMUNICATION OF REVOCATION

According to Section 4 the communication of revocation is complete.

As against the person who makes it, when it is put into a course of
transmission to the person to whom it is made, so as to be out of the power
of the person who make it.

ii) As against the person to whom it is made, when it comes to his knowledge.
.

Example: A proposes by letter to sell his house to B at a certain price. B accepts

the proposal by a letter sent by post. If A revokes his offer by telegram, then
revocation of offer is complete as against A, when the telegram is sent and for B
it is complete when B receives the telegram. If B revokes his acceptance by
telegram the revocation of acceptance is complete for B when the telegram is sent
and as against A, when it reaches him.

LAPSE OF AN OFFER

You have learnt that the acceptance must be given before the offer lapses or is
revoked. Now the question arises as to how long an offer remains open or upto
what time it can be accepted. You must know this because the offer must be
accepted before it lapses. Once an offer lapses ircannot be accepted. Let us now
discuss the circumstances leading to lapse. They are as follows:

1. By lapse of stipulated or reasonable time: The offeree must accept the

offer within the time prescribed in the offer and if no time is prescribed, it
must be accepted within a reasonable time. Thus, the offer lapses if it is not
accepted within the time prescribed in the offer or within a reasonable time.
What is a reasonable time depends upon the circumstances in each case. In
the cage of Ramsgate Victoria Hotel Co. v. Montefiore, M offered to
 buy shares of a company on June 8. The Company informed him about the
allotment on November 23. M refused to accept the shares. It was held that
M's offer to buy shares had lapsed because it was not accepted within a
reasonable time.
2. By death or insanity of the offerer or the offeree before acceptance: An
offer lapses by the death or insanity of an offerer if the fact of his death or
insanity comes to the knowledge of the acceptor before he makes his
acceptance.. But if the offer is accepted in ignorance of the death or insanity
of the offerer, there will be a valid contract. This means that the death or
insanity of the offerer does not terminate the offer automatically. The offer
lapses only when this fact comes to the knowledge of the offeree before
acceptance. Our law is different in this respect from English law where
the death of the offerer terminates the offer even if acceptance is made
in ignorance of the death.

There is no provision in the Act about the effect of the death of an offeree
before acceptance. But it is an established rule that the offer comes to an
end on the death of the offeree, because an offer can be accepted only by
the offeree and not by any other person. It cannot be accepted by the legal
heirs of the offeree.

3. By failure to fulfil condition precedent to acceptance: When there is a

condition in the offer which must be fulfilled before the acceptance of the
offer, the offer lapses if the acceptance is given without fulfilling that
condition. For example, A offered to sell his scooter to B for Rs. 10,000
subject to the condition that B should pay Rs. 2,000 before a certain date.
B accepted the offer but did not pay the money. In this case the acceptance
has no validity and the offer stands terminated.
4. By rejection of offer by the offeree: An offer lapses as soon as it is
rejected by the offeree. Once an offer is rejected, it cannot be revived
subsequently. An offer is said to be rejected, if the offeree expressly rejects
it or accepts it subject to certain conditions.
5. If it is not accepted in the prescribed or usual mode: Sometimes, the
offerer prescribes the mode of acceptance. In such a situation the offer
must, be accepted in that very manner and if it is not accepted in the
prescribed mode the offer stands lapsed. For example, A offers to sell his
house to B and writes to B .'send your acceptance by telegram'. Now if the
acceptance is sent by some other mode, then A may not be bound by the
acceptance. You have learnt about it in detail in Sub-section 2.3.4 of this
unit.
6. By counter offer by the offeree: Counter offer means making a fresh offer
instead of accepting the original offer. A counter offer amounts to the
rejection of the original offer. Hence, as soon as the counter offer is made,
 the original offer stand lapsed. If the person who makes a counter offer
changes his mind and wishes to accept the original offer, he cannot do so.
For example, A offered to sell his bicycle to B for Rs. 200. B said that he
would buy it for Rs. 170. Here B's offer to buy for Rs. 170 is counter offer
and terminates the original offer of A. If later on B wants to buy the cycle
for Rs. 200, it will be a case of a fresh offer and not an acceptance of the
original offer.
7. By revocation: If the offerer revokes the offer before its acceptance by the
offeree, the offer stands lapsed. According to rules, an offer can be
revoked, at any time before it is accepted by communicating a notice of
revocation to the offeree. For example, at an auction sale, the highest bidder
can revoke his offer to buy before the fall of the hammer.
8. By subsequent illegality or destruction of subject-matter: An offer
lapses if it becomes illegal before it is accepted. For example, A of Delhi
offered to supply 100 bags of rice to B at Lucknow on a certain date. But,
before this offer is accepted by B, the Government has issued an order
prohibiting the inter-state movement of food grains. Automatically the
offer made by A comes to an end. Similarly, if the subject-matter of the
offer is destroyed before acceptance, the offer lapses.

Modes of Acceptance under the Indian Contract Act

With the advent of information technology in the 21st century, the modes of
communication have changed over the period of time and people have moved on
to the new modes of communication such as e-mails, fax, telephone, etc. Initially,
offer and acceptance was mainly done in the form of postal communication but
today, we have varied forms of communications which are much faster and more
convenient like emails, and we term them as instantaneous modes of
communication. Today, for the purpose of commercial contracts, email is the
most prominent one. So, with the change in methods of communication, lots of
issues are placed before the courts such as when a contract is computed and when
a contract is concluded which is different in comparison to the postal mode of
communication. Another mode that is prevalent and has been prevalent since the
’90s is the telephone and telex services.
The Postal Rule Communication under Section 4 of the Indian
Contract Act
Section 4 of the Indian Contract Act deals with the communication of proposals.
It says that the communication of the proposal is complete when it comes to the
knowledge of the person to whom it is made. When A makes a proposal to B
through a letter, the communication of proposal against A is complete when he
puts the letter into the transmission and against B, when it comes to his
knowledge. Once B comes to know of the offer and wants to accept it, he will
write a letter of acceptance and post it.
Now, this acceptance has been completed against B, at the very point of time
when the letter was posted but against A, the acceptance was completed when he
came to know about the letter.
One of the most absurd but practical aspects of the postal rule is that if the
acceptance letter sent by the offeree, here B, is delayed, lost or maybe destroyed
during transmission the contract would be in effect as the acceptance has already
come into the picture once the letter of acceptance was posted by the offeree.
Hence, even without the knowledge of the acceptance of the contract, the offeror,
here A, will be bound by the contractual liability.
This aspect of the postal rule can be clearly observed in the Adams v. Lindsell
case. In this case, the defendants sent a letter offering a certain quantity of wool
to the plaintiff and in the letter; they stated “receiving your answer in the course
of post.” This letter was sent by the defendants to the plaintiff on 2nd September
1817 and it reached the plaintiff on 5th September 1817. The acceptance of the
offer was posted by the plaintiff on the very same day i.e. 5th September 1817.
The letter of acceptance reached the defendants on 9th September 1817.
On 8th September 1817 i.e. before the acceptance reached the defendants, the
defendants sold the goods to another person. A suit was filed by the plaintiffs for
breach of contract. The court held that as soon as the letter of acceptance was
posted by the plaintiffs, the contract came into action and hence, the plaintiffs
were held liable as they sold the goods to another person. The contention that the
defendants had not received the acceptance letter and hence not bound to the
agreement was rejected by the court. The court observed that if this contention is
accepted then no contract can ever be made through the post.
A similar thing happened in Dunlop v Higgins in which Dunlop, the plaintiff
offered to sell a certain quantity of goods to Higgins, the defendants at a certain
price. The letter of offer was posted and it reached the plaintiffs on 30th January.
The letter of acceptance was posted on the very same day but due to bad weather,
the acceptance reached the defendants on 1st February instead of 31st January.
The defendants refused to sell their goods on the ground that there had been a
delay in the acceptance and hence no contract had come into force. The court held
that the contract was created as soon as the letter of acceptance was posted by the
defendants and the fact that the acceptance was not communicated to the
defendants will not be taken into consideration.
Therefore, the contract comes into force at the very moment the letter of
acceptance is posted by the offeree.
What are the Exceptions to the Postal Rule of Communication?
The postal rule is essentially a rule of convenience and if the offeror chooses the
post as a means of communication, then the offeror must accept the inherent risks
that arise with the postal rule. But there are some instances where the postal rule
will not be applied due to some error performed either on part of the offeror or
offeree. The postal rule will not apply at the following instances:
 Where the letter of acceptance has not been properly posted
 Where the letter is not properly addressed.
 Where the express terms of the offer exclude the postal rule i.e. if the
offer specifies that the acceptance must reach the offeror.
 Where it is unreasonable to use the post as a means of communication
like replying by a second class post to a verbal offer.

When Contract is made through Telex or Telephone

Telex or telephone is an instantaneous mode of communication. It means that
while the parties are making an offer or during the process of constituting a
contract, it considered that they are direct contact to each other or we can say that
they are face to face. Hence, the postal rule cannot be applied in the case of
instantaneous communications.
The features of the instantaneous modes of communication are as follows
 The contract comes into force as soon as the offeror hears the
acceptance from the offeree.
 The place of contract is the place where the acceptance is heard by
the offeror.
 The time of the contract is when the acceptance is received by the
offeror.
 A distinctive feature of instantaneous (telex/telephone) mode of
communication is if the offeror does not hear the acceptance due to a
defect in the telephone line or the line goes dead, no contract will be
formed.
In Entores Ltd. v. Miles Far East Corporation
The plaintiff in London made an offer to the defendants in Holland through telex
and the acceptance was received by the plaintiff in London. The dispute arose as
to where the contract was formed. The court held that the contract was formed in
London i.e. where the acceptance was received. The court also made it very clear
that the rule of postal communication cannot be applied to instantaneous modes
of communication.
Bhagwandas v. Girdharilal and Co.
A similar view was expressed by the Supreme Court of India in Bhagwandas v.
Girdharilal and Co. Plaintiffs made an offer on phone from Ahmedabad for the
purchase of cotton seed cake from the defendant. The defendant accepted the
offer in on phone at Khamgaon. Defendant failed to supply the cake and was sued
by plaintiff to pay compensation for breach of contract. He filed suit in
Ahmedabad. Defendant contended that ahmedabad court had no jurisdiction
because the contract was completed by the acceptance at Khamgaon. It was held
that in case of telephonic conversation in a sense parties are in the presence of
each other. Each party is able to hear the voice of each other. There is instant
communication of speech intimating offer and acceptance or rejection or counter
offer. It was held that contract was made at Ahmedabad where the acceptance
was communicated and the part cause of action for breach of contract had arisen
within the jurisdiction of Ahmedabad Court. The Court had made it clear that in
case of telephonic conversations the parties are taken to be in presence of each
other and in such conditions the rule of the contract through posts cannot be
applied.
Postal Rule Communication versus Instantaneous Communication
The telephonic conversation is the same as a conversation between two people in
the same room; hence, the receipt rule applies here. Receipt rule means that in
order to constitute a contract the acceptance must reach to the offeror i.e. he must
have the knowledge of the acceptance. This is in contrast to the postal rule where
the contract comes into force at the very point of posting of the acceptance letter
by the offeree. This is very much justifiable on the ground that telephonic
conversations are an instantaneous mode of communication hence; it can be
reasonably assumed that the acceptance has reached whereas, in case of postal
communication, it takes some time for the acceptance to reach.
It is also argued that in case of an instantaneous mode of communication like
telephone, once the line has been established between the parties there’s no
involvement of a third party whereas in postal communication, the postal service
company act as the third party.
Also, it is not possible to revoke a contract made through instantaneous mode
unlike the contract made through the post. In the case of postal rule, most of the
time the offeror becomes the sufferer. Therefore, I feel that the law regarding
instantaneous mode seems to be more concise and fairer than the postal rule.
Email as a Mode of Communication
Most people have the perception that only those contracts can be enforced which
are properly written on paper and signed by the respective parties. However, one
must know that in today’s era of information technology, most of the contracts
are not written, and do not need to be always signed. A contract is simply an
agreement between two or more parties to do something (or refrain from doing
something) in exchange for some form of consideration. So, with this thought,
there is no reason why a contract entered through e-mail should not be
enforceable by law.
Contracts can be made through emails as well. In order to do so, the basic
contractual agreements of an offer and acceptance must be met as mentioned in
the Indian Contract Act. Also, it must be shown to the court that through email
exchanges and external conversation, both the parties had the intention to come
into the contract and be bound by it.
Vantage Systems Pty Ltd v. Priolo Corporation Pty Ltd,
it was held that a contract can arise as a result of an email exchange where both
parties intend for there to be a concluded and binding agreement. In cases of
tenants agreeing to a revised rent agreement from the landlord through an email,
the parties were immediately bound to that agreement as it is very much clear that
both the parties had the intention of entering into such a contract. In fact, the
conduct of the tenant i.e. him already living in the apartment proves his intention
and he’s simply agreeing to the offer made by the landlord.
Issues with Email as Mode of Communication
1. An issue can arise in cases of e-mail contractual liability. One can
claim that someone else accessed or maybe hacked their email
account and entered into the contract. But, this needs to be proved
through some other evidence as well.
2. Another issue that comes into light is the communication gap that can
arise while entering into a contract through e-mails. Considering that
email is an instantaneous mode of communication due to obvious
reasons and as it has been clarified by the Supreme Court in
Bhagwandas v. Girdharilal and Co. that in instantaneous modes of
communication, the acceptance of the offer must reach the offeror,
what if when an email of acceptance is sent to the offeror it does not
reach him at that instant; will that be considered as a contract? This is
the biggest question posed which has not been yet answered by the
Indian Contract Act, 1872. Although the Information Technology
Act, 2000 does satisfy some aspects of modern modes of
communication it does not clarify what kind of laws will be followed
for e-mails in terms of communication of offer and acceptance.